Baosteel Closes COREX Furnaces at Luojing Plant Due to Losses

SHANGHAI, Sept. 25 (SMM) – Baosteel has closed its Luojing Plant in Baoshan region in, Shanghai, as its two COREX furnaces with total iron making capacity at 3 million mt/yr and with strict requirement for raw materials have suffered losses since they started production. The #1 furnace halted production in July last year, while the #2 furnace closed on September 10.

COREX furnaces are regarded as symbol of Luojing Plant. The 1.5 million mt/yr #1 furnace went into operation at the end of 2007, while the #2 COREX furnace started construction in 2008 and came online in 1H 2011. Thus, the #1 furnace has operated for less than four years, and #2 furnace which cost three years for construction, has only operated for about a year. Meanwhile, Luojing Plant has been in operation for less than five years since it was acquired by Baosteel in April 2008.

Data showed that Baosteel acquired related assets and businesses of Luojing Plant under Shanghai Pudong I/S at RMB 14.34 billion paid in five year free of interest rate, meaning the payment should be fully paid on December 31, 2012. However, the project reported RMB 240 million in losses between April and December 2008, and the losses expanded to RMB 998 million in 2009. Two major factors are behind the severe losses.

First, although Luojing Plant deployed the first COREX C3000 furnace for production which was the largest facility of its kind, its high cost should not be neglected. Besides, the cutting-edge technology has not been widely applied and is highly demanding on raw materials. Coupled with the pronounced overcapacity in iron and steel industry with prices and demand both slipping, losses are unavoidable.

Second, Luojing Plant mainly produced special M&H plate and ship plate of high technology content and high added value. Nevertheless, the profit margin of M&H plate hit a high of 28.86% in 2008, when the #2 COREX project started construction, but dropped to nearly the lowest among all of Baosteel’s products in 2011, when the #2 project went into operation.

Since Xinjiang possesses abundant coal and iron ore resources, Baosteel decided to relocate its #1 COREX furnace to Xinjiang Bayi I/S. Despite raw materials and labor costs in Xinjiang, whether the project could gain profit remains to be seen.