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Tangshan Steel, the main unit of Hebei Iron & Steel Group, may reduce hot-rolled coil output by 130,000 metric tons through overhauling two production lines, said Hu Yanping, a Beijing- based analyst with UC361.com, a steel research company. Baotou Iron & Steel Group plans to cut hot-rolled production by about 70,000 tons, she said.

Benchmark steel prices in China, the biggest consumer of the metal, have fallen 8.8 percent from an 18-month high on April 15, according to Beijing Antaike Information Development Co. Baosteel Group Corp said last month steelmakers may face a “difficult” second half as measures to curb speculation in the property market may trim demand.

“Order books for major mills in June aren’t good as they haven’t cut prices enough to match spot levels,” Hu said, without disclosing how she knew of the plans. “They may need to lower July prices further.”

Zheng Ge, a media official with Tangshan Steel, and Guo Jinglong, board secretary of Inner Mongolian Baotou Steel Union Co., the listed unit of Baotou Group, couldn’t be immediately reached for a comment. Tangshan and Baotou’s maintenance schedule depend on market conditions, Hu said.

Crude steel output in China surged 27 percent to a record in April.

Stop Production

Daily production of crude steel has fallen to 1.8 million tons from May 11 to May 20, down from 1.83 million tons for the first ten days of last month and 1.88 million tons in the last ten days of April, Hu said, citing figures from the China Iron and Steel Association.

Of the 150 blast furnaces in Tangshan city, Hebei province, 18 stopped producing in late May, affecting 8.5 percent of local output, Hu said. “Higher raw material costs and falling steel prices are squeezing steelmakers’ profit margins,” she said.

Production cuts may reduce Chinese demand for raw materials including iron ore and coking coal. Iron ore prices almost doubled in the April to June quarter.

Prices for 62 percent iron-content ore arriving at Chinese ports have dropped 23 percent to $144 a ton from $186.50 on April 21, according to The Steel Index.

Vale SA, the world’s biggest iron ore exporter, will raise contract prices for the quarter starting July 1 to reflect higher average spot prices for three months March to May, Jose Carlos Martins, executive director of iron ore business, said yesterday. Chinese steelmakers may default on contracts should spot prices fall below the contract levels, he said.

--Helen Yuan. Editors: Tan Hwee Ann

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net.

Sourced from www.businessweek.com