China's steel industry reform needs govt support-Anshan Steel

6 March 2015

Chinese steelmakers are facing more headwinds this year as economic growth slows and need government support to tackle long-term overcapacity, the chairman of Anshan Iron & Steel Group said.

China's steel sector has been struggling with tepid growth in demand, increasing environmental protection costs and persistent overcapacity, forcing many uncompetitive producers to have closed since last year.

"The government should strengthen the elimination of outdated capacities, and particularly those enterprises that have failed to meet environmental standards in terms of the new environment law," Zhang Guangning, chairman of Anshan Steel Group, said during a gathering of Liaoning provincial delegates to the annual meeting of China's parliament on Thursday.

However, local Chinese authorities have always been desperate to strike a balance between shutting down outdated steel mills to address overcapacity and shielding themselves from surging unemployment and shrinking tax revenue.

China's total annual steel capacity is between 1.1 billion and 1.2 billion tonnes.

"There are three issues to be solved for the shutdown: how to settle (unemployed) workers, how to deal with debt, and they also need capital for restructuring and upgrading," Zhang added.

Zhang also urged the government to cut taxes for domestic miners as the tax duty has resulted in high-cost miners being unable to compete with top global miners.

"If the taxes are not cut, Chinese domestic miners will have to shut down, which will cause unemployment and bank debt, and the crucial thing is the big three miners will further monopolise the market after squeezing out others, which will be very serious to the steel industry."

State-owned steel producers Anshan Steel, parent of Angang Steel, Shougang Corp and Hebei Iron and Steel own a big chunk of the country's iron ore mines. The average taxes on iron ore miners are as high as 25 percent, far higher than top miners.

The top three mining giants Rio Tinto , BHP Billiton and Vale are expanding their production despite a slowdown in the world's top consumer.

China's domestic supply is expected to fall by another 70 million tonnes this year, or about a fifth of the country's output in terms of equivalent imported ore grade, the China Iron and Steel Association has said.


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