China's Shougang delays start-up as steel prices drop

By Lucy Hornby and Zhou Xin

BEIJING, Oct 15 (Reuters) - 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, an executive said on Wednesday.

The company's Caofeidian mill, in Hebei province, was previously scheduled to start production on October 18 and no new date has been set.

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.

"From a technical and engineering point of view, the plant is basically ready to go. But there are other reasons, including market factors, that have forced the delay," said Wang Zhongmin, president of Tangshan Caofeidian Industry and Development Co Ltd, which has developed the Caofeidian industrial zone.

Shougang officials could not be immediately reached for comment late on Wednesday.

"We would report 1,000 yuan losses for every tonne of steel output, so it's better not to produce any at all," a Shougang official was quoted by financial magazine Caijing as saying.

Domestic Chinese steel prices have fallen 37 percent from their summer peak, driving down the spot price for raw material iron ore by 44 percent, JP Morgan analyst Feng Zhang estimated in a report on Wednesday.

"At current steel prices... almost all the steel makers are losing money. We expect significant production cuts going forward," he said.

As steelmills scale back loss-making production, iron ore has piled up at northern Chinese ports.

Current cuts total about 1.25 million to 1.3 million tonnes of hot-rolled steel production, feeding through to cold-rolled steel and galvanized steel, industry website UMetal estimated.

Even deeper cuts are likely for construction steel, hard-hit by a slowdown in housing markets and by China's overcapacity.

In an effort to support falling steel prices, Shougang Group, Hebei Iron & Steel Group, Angang Iron & Steel and Shandong Iron & Steel agreed to cut production by 20 percent potentially through the end of this year. (Additional reporting by Risa Maeda in Tokyo, Editing by Peter Blackburn)