In an attempt to kickstart the economy, Beijing this month approved infrastructure projects worth around $160 billion, but there's no certainty the plans to build highways, ports and airport runways will significantly boost steel demand.

"The government's infrastructure investment may only improve sentiment ... I don't expect a big lift in steel demand," Zhang Dianbo, assistant president of Baosteel, told reporters at an industry conference in Dalian on Thursday.

Meanwhile, China's big steel mills are hurting.

Baoshan Iron & Steel Co (600019.SS) is one of the first to announce it is suspending production. But with the world's second-largest economy cooling and banks curbing loans to an industry that racked up $400 billion of debt during recent boom years, more stoppages are expected.

Outside China, top iron ore miner Vale (VALE5.SA) said it was forging ahead with projects to expand production, and forecast output of its biggest revenue earner would rise to 320 million metric tons next year from 312 million metric tons this year.

Global miners Rio Tinto (RIO.AX) (RIO.L) and BHP Billiton (BHP.AX)(BLT.L) said they remained confident about China's long-term demand outlook, with BHP predicting iron ore demand there wouldn't peak until 2025.

But, for now, some 40 percent of China's iron ore mines have suspended operations as a price slump means they are losing money, Liu Xiaoliang, executive deputy secretary general of the Metallurgical Mines Association of China told the conference.

The drop in China's steel demand has driven Shanghai rebar futures prices down by more than a fifth this year to as low as 3,206 yuan a metric tons, and hit demand for iron ore, sending prices of the main steel raw material to 3-year lows below $87 a metric tons .IO62-CNI=SI this month.

Iron ore prices have bounced back to above $100 a metric tons, but are still almost a third off this year's peak.

HIGH-COST PRODUCERS SUFFER

The slide in iron ore prices has mostly shut high-cost producers out of the market, particularly in China, prompting the China Iron and Steel Association (CISA) to lobby Beijing for cut taxes. China produces about 1 billion metric tons a year of iron ore and buys 60 percent of what is traded globally.

At current prices, iron ore still fetches more than twice what it costs Vale, Rio Tinto and BHP Billiton to mine it. Jose Carlos Martins, who runs Vale's iron ore business, said he expects prices to stay between $100-$120 a metric ton for some time.

Fourth-ranked iron ore miner Australia's Fortescue Metals Group (FMG.AX) this month slammed the brakes on plans to treble its iron ore capacity, cutting $1.6 billion in planned capital spending this year, and axing hundreds of jobs.

LOSS-MAKING PLANT

The Baosteel plant, in Shanghai's Luojing district, produces steel plate used in the construction industry and for making ships and oil rigs. The company, which bought the plant for 14 billion yuan in 2008, said it had been losing money due to weak demand and high costs.

"With demand from shipbuilders so weak, other producers such as Angang Steel 000898.SZ are also facing pressure," said Helen Lau, senior metals analyst at UOB-Kay Hian. She said further production suspensions would depend on whether steelmakers could compensate losses from other profitable units.

A Baosteel source, who has worked at the plant, told Reuters the facility would eventually be shut as part of broader plans to relocate operations away from Shanghai.

Chinese steelmakers, already battling overcapacity, have been struggling with razor-thin profits or losses since Beijing clamped down on the real estate sector, hitting steel demand.

Baosteel's first-half profit more than halved, excluding one-offs, and the company has forecast that steel prices will remain under pressure this year.

China's crude steel production fell 2 percent in mid-September to around 1.86 million metric tons a day. (Full Story)

Industry body CISA predicted China's steel production capacity would rise more than 4 percent this year to 900 million metric tons, about 200 million metric tons more than China consumes annually.

($1 = 6.3020 Chinese yuan)

(Additional reporting by Samuel Shen in SHANGHAI and David Stanway in DALIAN; Writing by Manolo Serapio Jr.; Editing by Ed Davies and Ian Geoghegan)

• A Permanent Economic Emergency