Four Chinese steel makers cut output up to 20 percent

Four big Chinese steel makers have agreed to cut production by up to 20 percent, perhaps until year-end, in a bid to put a floor under falling product prices, a Chinese industry official said on Wednesday.
Shougang Group, Hebei Iron & Steel Group, Anyang Iron & Steel and Shandong Iron & Steel, state-owned firms that produce nearly a fifth of China's steel, agreed earlier this week to cut output by between 10 and 20 percent, the official said, confirming the outcome of talks reported to be under way last week.
"The steel price declined a lot, so the steel companies decided to cut production until steel prices are stable," Zou Jian, chairman of the China Metallurgical Mines Association, told Reuters, describing the bid to put a floor under falling prices.
The four firms have a total capacity of about 100 million tonnes, almost a fifth of China's estimated production this year, which is expected to reach 520 million to 550 million tonnes. The cutbacks would make a dent of about 34 million tonnes in the amount of iron ore China uses, Xinhua estimated in a report last week.
China's top steelmaker, Baosteel Group, plans to produce 30 million tonnes of crude steel this year, up 5 percent on 2007. A senior manager at its listed arm, Baoshan Iron and Steel, which accounts for most of the group's volume, said the listed entity was on track to meet its own target. "We are managing to reach our annual sales plan of 24 million tonnes and it is very likely that we will make it," the senior manager said.
"We are overhauling a major blast furnace right now, which will affect production, but we have accounted for the refurbishment and overall annual production will not be impacted."
The rapid growth of China's economy has set off a feverish hunt for iron ore over the past three years, but the slowing global economy and the end of the Olympic Games, which required a massive construction effort, have cut demand for steel. Citigroup analyst Thomas Wrigglesworth said in a note to clients this week that Chinese steel prices had fallen about 17 percent from their peaks in June and July.
"We think that this is the result of demand destruction, which has precipitated from the combination of reduced ability for businesses to borrow and expand in a rising steel and commodity price environment," he said.
"The question now remains at what levels prices will stabilise. Producers are now being forced to cut production, and we think that the economics will force producers to leave the market. Currently spot prices remain below marginal cost, implying that we are still some way off equilibrium." The Hong Kong shares of Anshan's subsidiary, Angang Steel SZ> , were down 9.5 percent on Wednesday, while Jinan Iron and Laiwu Steel, which are merging to form Shandong Iron & Steel, were down 1.7 percent and 3.5 percent respectively.
For a story on how Asia's other steel company share prices have fared, please double-click on. The steel slowdown, together with a pile-up of iron ore stocks within China, has undermined the shipping market, which had enjoyed a boom on Chinese trade. The Baltic Dry shipping index has tumbled from 11,793 in May to 2,922 on Tuesday. "Iron ore imports may decrease but won't stop. China needs to import half the iron ore it uses for its steel production," Zou said.