Baoshan Iron & Steel Co., China’s biggest steelmaker, said product prices will stay at “low levels” in the second quarter as mills haven’t cut production fast enough to cope with the drop in demand.
The company has reduced output since the fourth quarter, and a furnace in the stainless-steel unit is suspended, general manager Fu Zhongzhe said in an online conference today. The first quarter was “difficult,” though the company stayed profitable, he said.
Baoshan Steel posted a 49 per cent drop in 2008 profit as the global recession damped steel prices and curbed demand from carmakers and shipbuilders. China is spending 4 trillion yuan ($585 billion) to reach an economic growth target of 8 per cent, supporting manufacturers and builders as exports collapsed.
“It’s taking time for the stimulus package to translate into real demand, while China is having severe domestic overcapacity,” chairman Xu Lejiang said at the same conference.
Baoshan Steel fell 2.5 per cent to close at 5.80 yuan today in Shanghai. The shares rose 25 per cent this year, compared with the 30 per cent gain in the Shanghai Composite Index.
Sales may fall 24 per cent to 145 billion yuan this year, while sales of steel products may rise 3.8 per cent to 23.45 million tonnes, Fu said.
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Benchmark steel prices in China have dropped 12 per cent since February, according to Beijing Antaike Information Development Co. Baoshan Steel cut April prices, the first drop in three months, by as much as 5.3 per cent, according to Mysteel Research Institute on March 3.
The company, which had to write down raw-material inventories since the fourth quarter, has delayed or cancelled iron ore shipments since September, vice president Chen Ying said today at the same conference.
It is also working through about one month of steel products stockpiles, Chen said.
Baosteel Group Corp., Baoshan’s parent, will sell its stake in a steel venture to partner Handan Iron & Steel Group, Chairman Xu also said today.
Baosteel and Handan agreed in May 2007 to build the 19 billion yuan plant in the northern Chinese province of Hebei. Handan Steel is part of Hebei Iron & Steel Group, China’s second-biggest producer.