Chinese local authority shuts steel mills in pollution fight

5 March 2015

Local authorities in China have closed a number of steel mills after they failed to meet environmental standards, industry sources said on Thursday, as the central government toughens its fight against pollution.

Premier Li Keqiang told the opening session of the National People's Congress on Thursday his government would do everything it could to fight pollution, which has become a lightning rod for public discontent.

There was no official estimate on how much production was affected by the mill closures in the eastern province of Shandong but the news sent Dalian iron ore futures slumping 4 percent amid fears the crackdown would spread to other mills, potentially cutting demand for the steel-making commodity.

China's vast steel sector is at the centre of the government's war on pollution. But complying with stricter standards would raise production costs and producers are similarly hit by tepid demand.

Inspectors from the Ministry of Environmental Protection last week summoned mayors from the cities of Linyi, and Chengde in the northern province of Hebei, urging them to crack down on firms that have violated environmental laws.

"Almost all the steel-making production in Linyi has closed, and there is no date for when to resume production," said an official with Linyi Yuansheng Casting Co Ltd, one of the mills in the city, who declined to be identified.

An official from another mill, Linyi Jiangxin Steel Co Ltd, said the company has stopped production, without elaborating.

Calls to other mills in the city including Linyi Steel and Shandong Shanwei Group as well as to the officials of the city and provincial government went all unanswered.

Analysts estimate the annual crude steel capacity in Linyi at about 7-8 million tonnes. China's total annual steel capacity is between 1.1 billion and 1.2 billion tonnes.

"Beijing's battle against pollution will increase costs for steel mills and force those uncompetitive ones to go bust eventually," said Cheng Xubao, an analyst with industry consultancy Custeel.

The government is determined to tackle hazardous smog by launching a new environment law, imposing higher environmental standards and strengthening monitoring. Some steel mills were closed permanently last year.

Chinese steel mills, already suffering from persistently low prices as a result of overcapacity and an economic slowdown, are now paying an estimated 160 yuan ($26) per tonne of steel to comply with stricter environmental guidelines.


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