* Firm halts output at loss-making plant on high costs
* Chinese steel makers battling over capacity, weak steel
* Plant has annual capacity of 3 million tonnes
* Baosteel output in 2011 was 43.34 million tonnes
(Adds details, comments from Baosteel source)
By Fayen Wong and Ruby Lian
SHANGHAI, Sept 27 Baoshan Iron & Steel Co
(Baosteel), China's biggest listed steelmaker, said
it has suspended production at a loss-making plant in Shanghai,
in a sign of the intense pressure on the sector as steel prices
trade near three-year lows.
The steelmaker is one of the first major Chinese mills to
publicly announce it is suspending production, but with the
world's second-biggest economy cooling and banks restricting
lending to an industry that built up $400 billion of debt during
years of double-digit growth more suspensions are likely.
The plant, in Shanghai's Luojing district which produces
steel plates used for ship building, oil rigs and construction,
has been losing money due to weak demand and high costs, the
firm said in a statement to the Shanghai Stock Exchange.
"With demand from the shipbuilders so weak, other producers
such as Angang Steel are also facing pressure," said
Helen Lau, a senior metals analyst at UOB-Kay Hian, noting
further suspensions would depend on whether firms could
compensate losses from other profitable units.
In an effort to kickstart the economy, Beijing approved some
$150 billion worth of infrastructure projects earlier this
month, but there are doubts steel demand in the world's largest
producer will pick up soon.
"The government's infrastructure investment may only improve
sentiment ... but I don't expect a big lift in steel demand,"
Zhang Dianbo, assistant president of Baosteel, told reporters at
an industry conference.
China's crude steel production fell 2 percent in
mid-September to 1.857 million tonnes per day after a surprise
1.2 percent increase in early September.
UOB-Kay's Lau said the Loujing plant was also more costly to
run because of its technology, whereby furnaces use the Corex
smelting process of gasifying non-coking coal to produce pig
A Baosteel source, who has worked at the Luojing plant, told
Reuters the facility would eventually be shut as part of broader
plans to relocate operations away from Shanghai.
Chinese steel makers, already battling over capacity, have
been struggling with razor thin profits or losses since
Beijing's clamp down on the real estate sector hit steel demand.
The Luojing plant, which Baosteel acquired in 2008 for 14
billion yuan ($2.22 billion) and has an annual capacity of 3
million tonnes, halted its first furnace in July 2011, according
a report in a weekly publication called Investor China.
The second furnace, which was operating at a monthly loss of
100 million yuan, was suspended along with the complex earlier
this month, the paper said, citing a worker at the plant.
IRON ORE PRICE
China's steel rebar futures, mainly used in construction,
have slumped as much as 24 percent this year to touch a
three-year low of 3,206 yuan in early September. Prices has
since ticked up after the government approved some $150 billion
yuan worth of infrastructure projects.
Weak demand has also hurt iron ore, a key steel making
ingredient. The price of ore .IO62-CNI=SI has fallen to
three-year lows at below $87 a tonne earlier this month as
waning steel demand in China cut demand for the raw material.
Iron ore prices have since bounced back to above $100, but
remain 30 percent off this year's peak as Chinese steel mills
Baosteel posted a 53-percent drop in first-half profit,
excluding one-off items, and expects steel prices to remain
under pressure for the rest of this year.
Baosteel shares slipped 0.22 percent by 0339 GMT, against a
0.27 percent gain in the broader Shanghai index.
($1 = 6.3020 Chinese yuan)
(Additional reporting by Samuel Shen, David Stanway and Manolo
Serapio in SINGAPORE; Editing by Ed Davies)