A unit of state-owned steelmaker Anshan Iron and Steel Group Co. will shut a large portion of its operation in China’s southwestern city of Chengdu later this month, a city official said Wednesday.

Such a closure of most of Pangang Group Chengdu Steel and Vanadium Co. is rare among state-owned steel mills, and signals the government’s willingness to downsize loss-making operations in a nationwide bid to slash industrial overcapacity and environmental pollution.

The shutdown will eliminate about 1.8 million metric tons of steelmaking capacity from Pangang Chengdu, a subsidiary of Anshan’s southwestern unit Panzhihua Iron and Steel Group Co., said an official with the Chengdu Municipal Commission of Economy and Information Technology. The volume would be out of a total of 36 million tons of obsolete steelmaking capacity scheduled to be removed this year from Sichuan province, where Chengdu is located, the official said.

“The blast furnace will be totally shut down,” said the official, who declined to be named. Such a shutdown will essentially mean the mill can no longer produce pig iron, an intermediate product that is the basis for crude steel and other construction steel products.

Pangang Chengdu says on its website it has a capacity of 2 million tons of crude steel capacity. Analysts say the company is likely to retain some capacity in making higher-value pipes.

A spokesman for Anshan said he wasn’t clear on the details of the matter. Calls to Pangang Chengdu went unanswered Wednesday.

Pangang’s troubles are the latest in a far-reaching shake-up of China’s steel industry. As an economic slowdown and new environmental priorities pressure steel mills, Beijing has ordered its mills to mothball plants, move capacity overseas and opened the sector up to foreign competition. Last week, it said foreign companies can take majority control of Chinese steelmakers with effect from next month, ending a nine-year ban.

In China’s biggest steel-producing province of Hebei, the government is forcing provincial officials to lop off almost a quarter of its steel production capacity by 2020.

Pangang Chengdu’s shutdown is not the first for a state-owned entity. In 2012, China’s largest listed mill, Baoshan Iron and Steel Ltd., halted output at a key Shanghai plant amid falling demand for its products from shipbuilding and oil industries.

Part of the rationale for Baoshan’s move at the time—to move the complex out of a city where new environmental priorities increasingly made outcasts of steelmakers—also applies to Pangang, analysts say.

“Because it is in Chengdu and Chengdu is a city, the mill may have needed to move or close down anyway because of its environmental pollution,” said Ma Haitian, a senior analyst for state-backed metals consultancy Beijing Antaike Information Development Co. “Pangang is a relatively small mill and this move is actually a good thing as it shows the government’s commitment to restructure and cut outdated capacity.”

A key problem in past efforts to kill obsolete capacity has been local employment. Local governments depend on industrial mills to provide jobs and revenue, and have in the past been reluctant to heed Beijing’s orders to enforce the cuts.

Pangang Chengdu’s website indicates it employs around 15,000 people. Analysts say about a third may be retained for the company’s pipe-making operations, based on unverified proposals for worker compensation. None of the companies or government officials involved have detailed plans to deal with the expected layoffs.

State law requires companies to notify the government ahead of large-scale layoffs, and state agencies typically mediate conflicts that result from layoffs. An official at the Chengdu Human Resources and Social Security Bureau said Wednesday she was unaware of Pangang Chengdu’s case.

Source : http://www.wsj.com/

Report Abuse