China's Hebei province launches new probe into steel overproduction

28 March 2017

China's Hebei province, a major steel-producing area, has launched a fresh probe into steel overproduction in the city of Tangshan amid concerns that firms have continued to raise output despite mandatory capacity cuts.

Hebei was ordered by China's central government to investigate firms in Tangshan that have "restricted but not cut production, restricted production but not actually cut emissions, and cut capacity but actually increased output," according to a provincial notice dated March 25 circulated by traders on Monday and seen by Reuters.

An industry source based in Tangshan confirmed the veracity of the document, but said it was unclear whether the new round of inspections would have any immediate impact on production or prices.

The document was issued by a special provincial policy team responsible for restructuring the steel industry. It said Hebei has already established an inspection team and Tangshan must begin its own investigations immediately.

Tangshan produces around 90 million tonnes of steel a year, more than the whole of the United States. China has pledged to slash steel capacity by between 100 million and 150 million tonnes over the 2016-2020 period to shore up prices and ease sector debts.

Located around 100 miles east of the capital Beijing, Tangshan is on the frontline of the country's "war on pollution", and was seventh on the list of China's ten smoggiest cities in the first two months of this year.

At the start of the year, Tangshan promised to shut 8.6 million tonnes of annual crude steel capacity in 2017. It pledged to make cuts of 40 million tonnes over the 2013-2017 period and had already shut 31.9 million tonnes by the end of last year.

Hebei promised to cut crude steel capacity to less than 200 million tonnes a year in the province by the end of 2020, down from 286 million tonnes in 2013. It aims to shut 15.6 million tonnes in 2017.

However, the Ministry of Environmental Protection has routinely named and shamed municipal governments in Hebei for failing to implement pollution rules.

Environmental group Greenpeace said in February that China's active steel capacity actually rose by 35 million tonnes in 2016 after the high-profile closure programme focussed mainly on shutting plants that had already been idled.

"The steel industry's capacity reduction targets need to be upgraded to reductions in actual production - only then will we see real improvements in air quality," said Lauri Myllyvirta, senior global campaigner at Greenpeace East Asia.