More China steel mills halt output on demand woes

4 December 2015

More steel mills in the Chinese province of Shanxi have halted production due to shrinking demand and a shortage of cash, according to industry consultancy Custeel, a move that could further deepen a rout in prices for raw ingredient iron ore.

Among the main 23 steel mills in the northern province, 10 including Linfen Iron & Steel, a unit of state-owned Taiyuan Iron & Steel Group, have shut down all blast furnaces, with a total annual capacity of 19.7 million tonnes, with the rest running at very low utilisation rates, Custeel said.

The growing output cutbacks underscored that China's steel industry is grappling with declining demand, overcapacity and tight credit. The massive sector has an annual crude steel capacity of about 1.25 billion tonnes.

"Driven by the continuous fall in steel prices and weakening steel demand, steel production is expected to fall further, so iron ore demand will keep weakening," the China Iron & Steel Association (CISA) said in a report on Friday.

Declining steel production and rising iron ore port inventory drove down iron ore prices by 2.7 percent on Friday to a record low of 284 yuan ($44.43) a tonne. Shanghai rebar prices also sank to all-time lows this week.

CISA members - about 100 big and large-sized steel mills, have made a loss of 38.64 billion yuan ($6 billion) for the first ten months of this year.

"With huge losses and sluggish steel prices, steel mills will face more difficulties in production, and iron ore prices are unlikely to rise," CISA said. ($1 = 6.3935 Chinese yuan renminbi) (Reporting by Ruby Lian and Kazunori Takada; Editing by Joseph Radford)