A STATE-OWNED Chinese steelmaker will close most of its facilities after falling steel prices forced it to halt production and lay off workers, a sign of the damage that persistent overcapacity is doing to the sector.

    Pangang Group Chengdu Steel & Vanadium Co., a subsidiary of Panzhihua Steel in Sichuan Province, will shut its blast furnaces and halt production of low-end steel products later this month after suffering huge losses, a mill official and industry sources said. The shutdown will leave it manufacturing only higher-end pipes.

    Steelmakers are expected to face more headwinds this year, due to soaring environmental costs, overcapacity and slower demand growth in the country. More inefficient mills are likely to shut down permanently.

    “We will stop iron making for environmental reasons and also stop producing low-end construction steel because of overcapacity,” said a sales official with the company, who declined to be named as he’s not authorized to speak to media.

    But the company will stop making steel and instead process the semi-finished steel products from its parent company into high-end pipes. Panzhihua Steel was acquired by the State-owned Anshan Iron & Steel Group Corporation in 2010.

    “The mill is not big, but this is the first State-owned steelmaker facing closure that we have heard,” said Xia Junyan, an analyst with Everbright Futures in Shanghai. The analysts said investors are concerned that more steel mills will face closures this year.

    The company has an annual crude steel capacity of 2 million tons and 1.2 million tons of construction steel products.

    China has tried to eliminate surplus capacity and drive through improvements in efficiency for years. But local governments have been desperate to protect mills in order to maintain economic growth, tax revenues and employment, denting the Central Government’s efforts.

    (SD-Agencies)