Baosteel Group Corp, China's top mill, is facing its toughest period in history as the economic downturn weighed on steel markets, an executive said, and traders believed that the company plans further price cuts.

Amid unfavorable economic and market conditions, domestic and international steel prices had plunged over the past months while inventories mounted, forcing mills globally to slash output.

"The crisis has led to substantial falls in output, sales and economy of scale for Baosteel Group, which has entered its most difficult time in history," a company newsletter quoted President He Wenbo as saying yesterday. The group was founded in 1978.

Meanwhile, its listed unit, Baoshan Iron & Steel Co, planned a further cut in product prices for January by 18 percent, according to traders. The Shanghai-based mill will slash prices for its main hot-rolled products by 700 yuan for January from December's level, a further sign of a dim outlook. The company has cut prices three times in the current quarter.

The price cuts may incur a "significant financial loss" for Baoshan steel in the current quarter, an industry publication said. Baoshan steel had warned of a fourth quarter loss when it reported third-quarter results.

Domestic steel prices have fallen more than 40 percent from their peak in early June. The entire steel industry in China, which is the top producer and user, started to incur losses from October, the country's steel industry association has said.

"So over the next two years, the profitability in the domestic steel industry is expected to hover near the bottom," Yang Baofeng, an analyst at Orient Securities said.

(Shanghai Daily November 28, 2008)