China begins construction of coastal steel project

26 August 2015

China has begun construction of a large 9.4 million tonne a year steel project in northern Hebei province, pushing on with plans to build newer, more efficient plants in coastal regions despite a supply glut and shrinking demand.

The project, the second phase of the Shougang Jingtang steel complex at Caofeidian, one of China's largest ports, is one of several integrated steel projects planned by top steel mills that were approved during the commodity boom.

The plant, which will help cut shipping costs for imported iron ore and coal, will involve a total investment of 43.55 billion yuan ($6.79 billion), the National Development and Reform Commission (NDRC) said on Tuesday.

The project start comes as the steel sector struggles with weak demand and chronic overcapacity that has pushed prices to more than 20 year lows, plunging many small mills into the red.

Total investment in the steel and processing sector fell 12.3 percent in the seven months to end-July from a year ago, the NDRC said.

However, big state owned firms suffer fewer restrictions on credit than their smaller rivals, while lower shipping costs will also help them gain competitiveness.

China aims to build three to five giant steel mills and boost the crude steel output of its top 10 steelmakers to more than 60 percent of the country's total by 2025.

Baoshan Iron & Steel and Wuhan Iron & Steel plan about 10 million tonnes a year of new steel capacity in coastal areas in order to take advantage of their proximity to southeastern Asian buyers and ore importers.

Baosteel will launch first phase operations at the 10-million tonne per annum Zhanjiang project in Guangdong province in September, while Wuhan has already commissined part of its project at Fangchenggang port in the southwestern region of Guangxi in June.

China's total steel production capacity stood at 1.16 billion tonnes by the end of 2014, according to official industry ministry figures. Output last year reached 822 million tonnes.