Shougang Says Chinese Steel Prices Drop Below Costs

By Helen Yuan

March 5 (Bloomberg) -- Steel prices in China, the world’s largest maker of the metal, have dropped below output costs and a further decline may lead to production cuts, Shougang Corp. said.

“A 20 percent cut may be suitable for the current demand situation,” Shougang’s Chairman Zhu Jimin said today on the sidelines of the National People’s Congress. Shougang is China’s eighth-largest steelmaker.

Benchmark steel prices in China have fallen 13 percent since Feb. 4 after mills increased output on expectation of demand coming from the government’s 4 trillion yuan ($585 billion) stimulus package. More than 60 percent of Chinese mills are losing money, the China Iron and Steel Association said Feb. 23.

“Steel prices may be near the bottom,” Zhu said. “They have fallen below production costs.”

Hebei Iron & Steel Group has cut output by 20 percent, Chairman Wang Yifang said today outside the congress, without giving details.

Shougang, based in Beijing, is in the “final stage” of talks to take over Changzhi Iron & Steel Group, which has an annual capacity of 4 million metric tons, Zhu also said. The company is completing due diligence, he said.

The Chinese government is pushing for consolidation in the steel industry to boost its competitiveness and raw material purchasing power. Baosteel Group Corp., the country’s largest steelmaker, will takeover two rivals as part of the plan, the China Iron & Steel Association said last month.

To contact the reporter on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net