Boashan shutters Shanghai steel plant
Loss-maker closed down amid depressed demand and flagging cost-competitiveness
Baoshan Iron & Steel, the listed unit of mainland steel giant Baosteel Group, has shut down a loss-making plant in Shanghai less than five years after it started production.
The decision was made after factoring in the Shanghai government's industry structure adjustment policy, depressed demand in the steel plate market, as well as the plant's weaker cost-competitiveness due to the kind of technology it used, it added.
"Subsequent matters will be decided after the company's board next meeting, and any decision will be disclosed accordingly," Baoshan said.
It did not comment on media reports that it was planning to move facilities from Shanghai's Luojing district to the Xinjiang autonomous region to expand its Bayi plant there; and to supply equipment for its planned 40 billion yuan (HK$48.91 billion), 8.7 million tonne-a-year steel mill in Zhanjiang, Guangdong province.
According to an invitation-to-bid document posted on a government-run tendering website, Baoshan asked potential bidders in March to bid for a project to move blast furnaces and related structures from Luojing to its Bayi plant in Xinjiang. It expected the move to be completed by October next year.
UOB Kay Hian Securities analyst Helen Lau said that while raw materials like coking coal might be cheaper to source near Xinjiang, it was not apparent whether the Bayi plant would be able to run profitably with the equipment moved from Luojing.
She noted that the Luojing facilities were more expensive to run than conventional blast furnaces, due to its less-proven technology and more stringent requirements on the quality of raw materials used in the steel-smelting process.
Because of Luojing's higher operating costs, Lau said Baoshan's decision to shut down the plant, should not necessarily herald more plant closures by its peers, despite poor industry profits due to weak demand and oversupply.
Baoshan bought the Luojin plant from parent Baosteel Group in 2008 for 14 billion yuan.
