BEIJING, June 12 (Reuters) - China's Baosteel will cut prices of its main products by around 4 percent in July, its first reduction this year as it responds to slackening demand in the world's biggest steel consumer, sending its Shanghai-listed shares down nearly 3 percent.
The Baosteel group's pricing moves are generally seen as an industry bellwether and while demand generally weakens in hot summer months as construction projects slow, analysts said the latest adjustment reflects the company's lack of confidence in the Chinese economy.
"What happened was that for the last couple of months Baosteel has been keeping their prices unchanged, hoping that the market would see a recovery," said Joshua Johnston, senior research analyst with Steel Business Briefing in Shanghai.
"(Baosteel prices) are just way too high for the market and are not able to attract traders."
Baosteel is the world's third-largest steel producer, after ArcelorMittal and Hebei Group, another Chinese steelmaker, based on data from the World Steel Association.
The company, the parent of listed Baoshan Iron and Steel , said it would cut prices of its hot- and cold-rolled steel products by 200 yuan ($31.40) per tonne for July bookings. Other products would see price falls ranging between 100 and 400 yuan, it said.
The last time Baosteel cut prices was in December, when Beijing's monetary tightening moves to curb inflation dented steel demand. The company's shares fell 2.6 percent on the Shanghai Stock Exchange by 0535 GMT, underperforming the broader market's 0.3 percent decline.
Steel demand in China has been stagnant this year, especially from major consumers such as the real estate sector, and longstanding overcapacity problems have also eaten into margins and caused industry losses of more than 1 billion yuan in the first quarter.
Beijing's decision to cut interest rates last week, together with a pledge to speed infrastructure construction over the rest of the year, is not expected to result in a rapid pick-up in steel demand.
"It will help a bit, but I don't think it is going to result in a huge recovery and might just stop the bleeding," said Johnston.
Despite the economic slowdown, crude steel output remained close to record levels since late March, driving iron ore imports to 63.84 million tonnes in May, up 10.7 percent from the previous month.
But daily steel production has already started to decline, falling below 2 million tonnes for the first time in more than two months at the end of May, according to industry estimates, with a number of mills cutting output in a bid to shore up prices.
Mills have pursued a strategy based on clinging onto market share rather than protecting their margins, and the China Iron and Steel Association has warned that current output cuts are still insufficient to spark any recovery in prices.
"I assume once a few of them start cutting, all of them will start pulling back a little bit, so I wouldn't be surprised if Baosteel announces 'maintenance' or the idling of HRC (hot-rolled coil) lines in the coming weeks," said Johnston.