China’s Shougang Group has postponed the start-up of a new steel mill on the coast of northern China as steel prices plunge below the cost of production.
It started when Shougang Group announced it would auction off most of its blast furnaces in western Beijing. A source of the group said that the No 5 furnace, the first large facility ever constructed for iron making by Shougang will be the first to be sold. With a capacity of 1,036 cubic meters, this furnace stopped production in July 2005.
That’s when Shougang was ordered to relocate to Caofeidian, an islet in the Bohai Sea in order to reduce pollution before the Olympic Games. Altogether 30 million tonnes of iron had been produced through this furnace.
Shougang had permanently shut some old, polluting plants in Beijing and reduced operations at others as it built a state of the art 10-million tonnes-per-year mill in Caofeidian.
The new plant will be more efficient and cut costs because it is near an iron ore port and has been suppoerted by the Tangshan Caofeidian Industry and Development, which has developed the Caofeidian industrial zone.
Shougang officials could not be immediately reached for comment.
A Shougang official was quoted by financial magazine Caijing as saying, ‘We would report 1,000 yuan losses for every tonne of steel output, so it’s better not to produce any at all.’
Domestic Chinese steel prices have fallen 37% from their summer peak, driving down the spot price for raw material iron ore by 44%.
JP Morgan analyst Feng Zhang siad. ‘At current steel prices . . . almost all the steel makers are losing money. We expect significant production cuts going forward.’