Baoshan Iron & Steel Suspends Production As Demand In China Slows Down

Baoshan Iron & Steel, the fourth-biggest steel producer in the world, has suspended production at its plant in China with a slowdown in demand. The plant’s activities have been suspended to avoid the increasing operating losses of the company. As we have been mentioning in our previous updates, China has been facing serious demand issues with regards to steel. Despite the recent cut in the interest rate by the Chinese officials, industrial activity has fallen significantly in the last six months and the housing and infrastructure activities too are not showing any signs of revival. The data published by HSBC on September 20 showed that industrial activity has remained subdued across China with the purchasing manager’s index showing a contraction for another month.  

China is the world’s largest producer and consumer of steel but has been facing severe downward pressure as economic growth has slowed down in recent times, slumping to its worst period in the last three years. A slowdown in demand and subsequently a fall in the steel prices have resulted in losses for most of the steel companies in China.

According to media reports, Baoshan Steel in its latest earnings release has said that excluding one-off items, its net profit for the first half of the year fell by 53 per cent on a YoY basis. Further, it pointed out that the situation is likely to remain the same in the coming months too. Steel prices are expected to remain at low levels in the second half of the fiscal due to oversupply.

However, any major stimulus from the Chinese government may usher in some hope for the steel players. Higher spending on infrastructure and a revival in the real estate market may provide a booster dose to the Chinese steel market as well.

On the domestic front there will be concerns about the rising imports but the recent announcement of major reforms, including higher spending on infrastructure development, will keep things in a better situation than the global markets. However, there will be concerns on the input cost front, especially from the high iron ore prices. The rupee has appreciated in the last one month and this will provide major relief for the steel companies that rely on imported coking coal.