Baoshan Iron & Steel Co <600019.SS> (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, located in Shanghai's Luojing district, has been making losses due to weak demand and high costs, the firm said in a statement to the Shanghai Stock Exchange, responding to a media report.
The Luojing plant, which Baosteel acquired in 2008 for 14 billion yuan ($2.22 billion) has an annual capacity of 3 million metric tons, halted production earlier this month, according a report in a weekly publication called Investor China.
It produces largely steel plates, which are used in shipbuilding and manufacturing.
Chinese steel markers, already battling with overcapacity, have been struggling with razor thin profits and sometimes losses since Beijing's clamp down on the real estate sector hit steel demand.
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.
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 as the industry shows no sign of curbing output and steps to stimulate the economy take time to kick in.
($1 = 6.3020 Chinese yuan)
(Reporting by Samuel Shen and Fayen Wong; Editing by Ed Davies)