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Baosteel halts output at plant in Shanghai to avoid further losses
Source: Agencies/Shanghai Daily |
September 28, 2012, Friday
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Print Edition
Print Edition
CHINA'S largest steelmaker has suspended production at a plant in Shanghai to avoid further losses amid the slowdown in the world's second-largest economy.
The suspension signaled the intense pressure facing China's steel industry, which is struggling with weak demand, falling prices and high costs.
Baoshan Iron & Steel Co decided to halt production to avoid "further increasing its operating losses," the firm said in a statement to the Shanghai Stock Exchange. It didn't disclose the capacity involved or when production may resume.
The Luojing plant in north Shanghai, which produces steel plates for shipbuilding and construction, was acquired by Baoshan Steel from its state parent, Baosteel Group, in 2008 for over 14 billion yuan (US$2.2 billion). But the purchase proved not successful because the overall economic situation changed and the plant became more costly to run due to the technology then.
A Baosteel source said the Luojing plant may eventually be relocated outside Shanghai to regions with lower input costs.
In July, Baosteel said that over the next five years it will transfer 30 percent of its steelmaking capacity in Shanghai to Guangdong Province and the Xinjiang Uygur Autonomous Region where the Shanghai-based company has operations.
The domestic demand for steel has been hurt by China's curbs imposed on construction to prevent overinvestment and cool surging housing costs. Shipbuilding also has suffered; its industry group says orders are down 50 percent compared with a year ago and news reports say dozens of shipyards might close for lack of business.
Baosteel was the first major steel producer to announce the closure of a mill while others have kept mills operating at low capacity, buoyed by loans and subsidies from local governments that want to avoid losing jobs.
Baosteel had some 117,000 employees as of the end of 2011, according to the company's website. It posted 18 billion yuan (US$2.9 billion) in profit last year despite the slowing Chinese economy.
The move by one of China's most prominent and prosperous companies reflects the painful squeeze that has hit producers of steel, aluminum, cement and some other goods. They grew fast as investment in new factories and other assets soared in the years before the 2008 global crisis and now output capacity far outstrips anemic demand.
"There are signs of severe overcapacity in steelmaking and other industries as well," The Associated Press quoted Capital Economics analyst Mark Williams as saying.
"It's going to be painful for a lot of industries in China," said Williams. "And the pain is going to be felt beyond China's borders because a lot of companies elsewhere in the world have prospered from selling commodities and capital goods to China. The outlook for them is not so rosy."
The shutdown of the Luojing plant is a new sign of weakening growth in the world's second-largest economy.
China's economic growth fell to 7.6 percent in the three months ended in June. That is robust by the standards of the US and Japan, where growth this year is forecast in low single digits, but is painful for Chinese companies that rely on high growth to drive demand for new factories, apartments and other assets.
Analysts are forecasting a rebound late this year or in early 2013 but say it likely will be too weak to support global growth without improvement in the US and Europe.
China has tried to support growth by approving a multibillion-dollar wave of investment projects and construction of public facilities such as subways and airports. But authorities have moved cautiously after their huge stimulus in response to the 2008 downturn ignited inflation and a wasteful building boom.
Chinese steelmakers lost money four out of the first seven months of the year, according to their industry group, the China Iron & Steel Association. China accounts for about half of world steel production.
Some industries have been hit even harder. Chinese producers of solar panels, an industry in which supply far outstrips demand, have reported losses of hundreds of millions of dollars this year.
Even after China's growth recovers, analysts say industries such as steel and cement will see lower demand than they did during the investment boom.
Chinese authorities have said cement, solar panels, wind turbines and other industries are areas in which overcapacity should be reduced.
The suspension signaled the intense pressure facing China's steel industry, which is struggling with weak demand, falling prices and high costs.
Baoshan Iron & Steel Co decided to halt production to avoid "further increasing its operating losses," the firm said in a statement to the Shanghai Stock Exchange. It didn't disclose the capacity involved or when production may resume.
The Luojing plant in north Shanghai, which produces steel plates for shipbuilding and construction, was acquired by Baoshan Steel from its state parent, Baosteel Group, in 2008 for over 14 billion yuan (US$2.2 billion). But the purchase proved not successful because the overall economic situation changed and the plant became more costly to run due to the technology then.
A Baosteel source said the Luojing plant may eventually be relocated outside Shanghai to regions with lower input costs.
In July, Baosteel said that over the next five years it will transfer 30 percent of its steelmaking capacity in Shanghai to Guangdong Province and the Xinjiang Uygur Autonomous Region where the Shanghai-based company has operations.
The domestic demand for steel has been hurt by China's curbs imposed on construction to prevent overinvestment and cool surging housing costs. Shipbuilding also has suffered; its industry group says orders are down 50 percent compared with a year ago and news reports say dozens of shipyards might close for lack of business.
Baosteel was the first major steel producer to announce the closure of a mill while others have kept mills operating at low capacity, buoyed by loans and subsidies from local governments that want to avoid losing jobs.
Baosteel had some 117,000 employees as of the end of 2011, according to the company's website. It posted 18 billion yuan (US$2.9 billion) in profit last year despite the slowing Chinese economy.
The move by one of China's most prominent and prosperous companies reflects the painful squeeze that has hit producers of steel, aluminum, cement and some other goods. They grew fast as investment in new factories and other assets soared in the years before the 2008 global crisis and now output capacity far outstrips anemic demand.
"There are signs of severe overcapacity in steelmaking and other industries as well," The Associated Press quoted Capital Economics analyst Mark Williams as saying.
"It's going to be painful for a lot of industries in China," said Williams. "And the pain is going to be felt beyond China's borders because a lot of companies elsewhere in the world have prospered from selling commodities and capital goods to China. The outlook for them is not so rosy."
The shutdown of the Luojing plant is a new sign of weakening growth in the world's second-largest economy.
China's economic growth fell to 7.6 percent in the three months ended in June. That is robust by the standards of the US and Japan, where growth this year is forecast in low single digits, but is painful for Chinese companies that rely on high growth to drive demand for new factories, apartments and other assets.
Analysts are forecasting a rebound late this year or in early 2013 but say it likely will be too weak to support global growth without improvement in the US and Europe.
China has tried to support growth by approving a multibillion-dollar wave of investment projects and construction of public facilities such as subways and airports. But authorities have moved cautiously after their huge stimulus in response to the 2008 downturn ignited inflation and a wasteful building boom.
Chinese steelmakers lost money four out of the first seven months of the year, according to their industry group, the China Iron & Steel Association. China accounts for about half of world steel production.
Some industries have been hit even harder. Chinese producers of solar panels, an industry in which supply far outstrips demand, have reported losses of hundreds of millions of dollars this year.
Even after China's growth recovers, analysts say industries such as steel and cement will see lower demand than they did during the investment boom.
Chinese authorities have said cement, solar panels, wind turbines and other industries are areas in which overcapacity should be reduced.
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