Dras­tic mea­sures: Steel pro­duc­tion to be pared over next five years

China Daily (Hong Kong) - - BUSINESS - The au­thor is man­ager of China non­fer­rous me­tals with CRU, an in­de­pen­dent com­mod­ity in­for­ma­tion provider. By DU JUAN du­juan@chi­nadaily.com.cn

The State Coun­cil, China’s cabi­net, plans to cut 80 mil­lion met­ric tons of steel pro­duc­tion ca­pac­ity in five years, which is aimed at im­prov­ing air qual­ity and help­ing an in­dus­try hit hard by de­struc­tive com­pe­ti­tion.

“China should not add any sin­gle new steel pro­ject for any rea­son,” said Li Xinchuang, head of the China Me­tal­lur­gi­cal In­dus­try Plan­ning and Re­search In­sti­tute.

He called the ban a must in or­der to help the en­vi­ron­ment and put an end to the un­fair com­pe­ti­tion caused by steel mills that haven’t in­stalled emis­sion-re­duc­tion equip­ment.

To achieve the tar­get, He­bei prov­ince, the largest steel pro­ducer in China, will cut steel ca­pac­ity by 60 mil­lion tons by 2017, which means that onethird of the prov­ince’s steel ca­pac­ity will be shut down by then.

The lo­cal govern­ment said on Tues­day that its goal is to re­duce 15 mil­lion tons of crude steel ca­pac­ity in 2014.

“He­bei will de­stroy blast fur­naces and cut the power sup­ply to pro­duc­tion lines that are tapped for shut­down, which means the steel com­pa­nies can­not put them back in pro­duc­tion again,” said Lu Huay­ing, an an­a­lyst with Lange Steel In­for­ma­tion Re­search Cen­ter.

She said the cen­tral govern­ment has been en­cour­ag­ing com­pa­nies to save en­ergy and cut emis­sions for years, but the tem­po­rary mea­sures re­sulted in fail­ure when steel mills started to pro­duce again af­ter au­thor­i­ties’ checks.

“This time, He­bei’s govern­ment has shown its de­ter­mi­na­tion,” she said.

“We take it se­ri­ously,” said Niu Yongzhi, a lo­cal of­fi­cial at the Min­istry of In­dus­try and In­for­ma­tion Tech­nol­ogy of Shi­ji­azhuang in He­bei prov­ince.

“It will def­i­nitely af­fect eco­nomic per­for­mance in com­ing years, but it will be ben­e­fi­cial to the pub­lic in the long run,” Niu said.

He said the govern­ment treats all com­pa­nies equally, no mat­ter whether they are State-owned or pri­vate.

“Our stan­dard is green pro­duc­tion. Ca­pac­i­ties that don’t meet en­vi­ron­men­tal pro­tec­tion stan­dards will be shut down,” he said.

Start­ing in 2008, when China de­cided to in­vest 4 tril­lion yuan ($658 bil­lion) to boost the econ­omy, China’s steel in­dus­try en­tered into a pe­riod of rapid de­vel­op­ment.

Na­tional crude steel out­put soared from 500 mil­lion tons in 2008 to 717 mil­lion tons in 2012. Dur­ing the same pe­riod, steel pro­duc­tion ca­pac­ity rose from 600 mil­lion tons to al­most 1 bil­lion tons.

“At the be­gin­ning, it is ef­fec­tive to use ad­min­is­tra­tive mea­sures. But mar­ket-based means and pric­ing mech­a­nisms are the long-term method for solv­ing the over­ca­pac­ity prob­lem,” said Zhang Lin, a se­nior re­searcher at Lange.

She said a dif­fi­cult task now fac­ing lo­cal govern­ments is how to re­lo­cate enor­mous num­bers of steel in­dus­try work­ers.

Tang­shan city, the largest steel maker in He­bei prov­ince, is home to about 400 steel com­pa­nies, as well as thou­sands of oth­ers in steel-re­lated in­dus­tries.

As many as 400,000 peo­ple will have to look for new jobs when the projects on which they are work­ing shut down. Zheng Jinran con­trib­uted to the story.

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