Mills in China's top steel city face new pollution penalties

20 July 2015

China's top steel producing city of Tangshan will punish firms if they fail to meet tough new pollution standards over the next three months, according to new industry guidelines, a move that could force closures and help ease a severe capacity glut.

China is using tougher environmental rules to help tackle a severe glut of steel capacity that has depressed prices and saddled much of the sector - the world's biggest - with crippling debt.

Already struggling with record low prices and rising environmental compliance costs, firms could now have their power prices tripled if they fail to pay for the work required to meet the new standards, analysts estimated.

The new measures, dated July 1 and circulated over the weekend by traders and analysts, target big industrial coal and water consumers in Tangshan, including coal-fired power plants, cement manufacturers and steel producers. The measures, reviewed by Reuters, also ban the sale and utilisation of low-grade coal.

As a result, billet prices in Tangshan have risen by as much as 60 yuan per tonne, according to analysts at Xiben New Line E-Commerce, a steel trading platform in Shanghai.

"With the industry now facing severe losses, and with more and more steel mills cutting output, the unusual price movements in Tangshan will raise confidence among traders in other regions and see an increase in prices across the board," the analysts said in a note.

In order to comply with the new emissions standards, 29 steel enterprises will have to upgrade a total of 104 blast furnaces, 182 converters and 22 sintering plants by the end of October, the document said. Enterprises that fail to do the work in the stipulated time will face higher power prices.

Tangshan, which is located around 150 kilometres (90 miles) from the capital Beijing, produced around 90 million tonnes of crude steel last year, more than the whole of the United States.

It is regularly listed among China's most polluted cities, and it is under pressure to shed at least 28 million tonnes of capacity over the 2013-2017 period.

Tangshan is the top steel producing city in Hebei province, which is aiming to shed 60 million tonnes of steel production capacity over the 2013-2017 period.

Chinese steel mills have already been facing rapidly rising environmental compliance costs at a time when demand is slowing and steel prices are the lowest in more than 20 years.