Malinvestment Report: China Opens Massive New Steel Complex Despite Sweeping Excess Capacity And 50% Plunge In Prices

by Bloomberg News

Baoshan Iron & Steel Co. started production at its new project in China’s southern port city of Zhanjiang even as steel prices plunge amid sluggish demand in the country, which is facing its slowest pace of economic growth in 25 years.

The No. 1 blast furnace of the project, designed to have an annual capacity of 4.1 million metric tons of melted iron, was ignited Sept. 25, the company, China’s biggest publicly traded steelmaker, said in a filing to the Shanghai Stock Exchange on Sunday. The project will be fully operational a year later with an expected annual crude steel production of 8.75 million tons, it said. It usually takes three to six months of trial production before a new steel mill begins commercial operation.

Chinese mills face declining domestic demand for the first time in a generation amid a property slump, which crushed prices in the nation that produces more than half of world output. Steelreinforced bar, which is used in construction, almost halved in the past two years on the Shanghai Futures Exchange while hot-rolled coil, used in automobile and machinery, dropped 42 percent since its debut in March 2014.

Baosteel shares fell 2.6 percent Friday to close at 5.56 yuan in Shanghai, taking their decline so far this year to 21 percent. The company said last month it expected a 50 to 60 percent drop in net income for the first nine months of the year, citing foreign exchange losses related to debt restructuring after a surprise yuan devaluation.

Source: China's Baoshan Steel Starts Zhanjiang Mill Amid Falling Prices - Bloomberg Business

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