Baosteel expects higher 2016 steel output even as China combats glut

By David Stanway and Ruby Lian

BEIJING/SHANGHAI (Reuters) - China's top listed steelmaker Baoshan Iron and Steel Co. Ltd (Baosteel) expects its total output to rise about 20 percent in 2016, even as the country steps up efforts to slash a massive capacity glut amid a rise in anti-dumping complaints.

China has been aggressively shipping out its surplus steel products and selling them, according to other producing nations, at unfairly low prices. Exports hit a record 112 million tonnes last year and as recently as this week, India's Tata Steel put its British operations up for sale, blaming a glut in cheap Chinese steel for the move.

Total steel capacity in China is estimated at around 1.2 billion tonnes and is expected to further increase this year, according to the China Iron and Steel Association.

Baosteel's huge Zhanjiang steel production base, with an annual capacity of about 9 million tonnes, goes into operation later this year, its board secretary Zhu Kebing said.

Baosteel, the listed arm of China's No.2 steel producer - the Shanghai-based Baosteel Group, produced 22.6 million tonnes of crude steel in 2015, and is likely to produce 27.1 million tonnes this year, Zhu added on Thursday.

"As a result of the completion of main production lines at the Zhanjiang project in 2016, the scale of the company's output will show an increase," he said. Zhu, however, added that steel prices, currently near decade-lows, are expected to remain weak.

The plunge in the prices of steel amid a slowdown in China's economic growth has taken a toll on producers' earnings, with Baosteel reporting a 82.5 percent year-on-year slump in 2015 net profits to 1.013 billion yuan ($156.70 million).

Other steel firms fared even worse last year. Maanshan Iron & Steel reported losses of 4.8 billion yuan after a modest profit in 2014, Hunan Valin Steel also posted a loss of 2.96 billion yuan, while the Angang Steel Company reported losses of 4.59 billion yuan.

With China's steel capacity surplus at around 400 million tonnes and average utilisation rates at under 70 percent, the government is aiming to shut around 100-150 million tonnes of capacity in the next five years.

BAOSTEEL TO BENEFIT FROM REFORMS

Local governments are currently working out how the capacity closure targets will be divided among producers, Zhu said.

"Looking over the long-term, China's steel demand has already hit a peak and some capacity needs to be withdrawn from the market, or merged and restructured, and this will benefit the company by raising our market value," he added.

Increased buying from Chinese steel mills has buoyed iron ore prices this year, but Zhu does not see this rally lasting.

Spot iron ore prices have risen 24 percent so far in 2016, but have fallen 16 percent from this year's high of $63.30 a tonne reached on March 8.

"The price increase in March was the result of many different factors, and short-term fluctuations are normal, but (we) don't think it is sustainable," he said, adding that iron ore will remain oversupplied this year.

($1 = 6.4644 Chinese yuan)

(Reporting by Ruby Lian and David Stanway; Editing by Himani Sarkar)