A Short Story Of A Money-Losing Steel Mill In China

Remember Baosteel, which had a new steel project approved by the government, and the construction of the new plant started, then stopped?

The reality that the steel industry has a little problem of overcapacity is no secret.  With absurdly low profit margin, and the slowing economy are hurting a lot of steel plants as demand slows and financial leverage bites.

A few years ago, Baosteel acquired a plant at Loujing from Shanghai Pudong Steel company, and moved their productive capacity to this acquired plant to accommodate for the Shanghai Expo.  According to Investor China (via Sina), the plant was acquired at RMB 14.34 billion, and was meant to be paid in instalments, with the last one to be paid by the end of this year.  New production capacity was built with newest technology, which costs more to produce steel.

Despite the fact that the payments have not been completed, the plant has already stopped production.

Perhaps the most appalling part, however, is that the plant loses RMB100 million each month according to a worker.  One of the new production capacity has only been completed in the first half of this year, but production has already been halted two weeks ago.  Another facility which was completed in late 2007 has also been closed down in July last year.  The worker said that this plant with latest technology is more for “showing off”, as it is more expensive and difficult to operate, which explains the unprofitability of the plant.

So in less than 5 years since the project was acquired, and before all the payments for the acquisition have been made, the whole project is dead already.

Yet, they are not giving up this expensive technology, as they plan to move their capacity to Xinjiang.  Good luck with that.

This article originally appeared here: A short story of a loss-making steel mill in China
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

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