Shanghai-based Baosteel Group, China's third largest steel mill by production capacity, denied a report about the shutdown of its recently launched project at Zhanjiang Port in South China's Guangdong Province. "Everything is on the right track," He Chao, PR director at Baosteel, told the Global Times Monday. "However, the project is still in the development phase."
Shanghai-based Xinmin Evening News reported Thursday that Baosteel has suspended its Zhanjiang project, except the power plant, only one and a half months after the start of the construction. The whole steel sector, including high-end steel products widely used in auto, ship and mechanical equipment, is suffering from excessive supply, said Wang Chunsheng, vice secretary-general of the China Iron and Steel Association (CISA). In recent years, major steel mills increased their investment and production capacity in response to a surging demand for high-end steel products, but the market demand has dropped due to the economic slowdown, Wang told the Global Times Monday.
Baosteel began construction on its Zhanjiang project on May 31 to produce 10 million tons of high-end steel products annually. Wuhan Iron and Steel Group also began construction on its 9.2-million-ton high-end production base in Fangchenggang port in Guangxi Zhuang Autonomous Region in the same period. "Despite the oversupply in the market, the two projects are aligned with the national development strategy as China is encouraging large producers to relocate their plants from urban areas to the coast so as to cut logistics costs and reduce urban pollution," said Wang.
China relies heavily on iron ore imports, and logistics costs can be reduced if steel plants are built near the ports, he noted. The projects also represent upgrades of production facilities, as the Guangdong government intends to close 16.14 million tons of outdated crude steel production capacity once the Zhanjiang project is completed. Meanwhile, building production facilities in the South will help meet the local demand in Guangdong and Guangxi, Wang Guoqing, a steel analyst with Beijing-based Lange Steel Information, told the Global Times. However, it is difficult to predict the market demand of steel when the projects are finally completed two to three years later, said Wang of CISA