UPDATE 1-China's top steel producing province to cut capacity by 60 mln T

Thu Mar 7, 2013 12:44am EST

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By David Stanway

BEIJING, March 7 (Reuters) - China's top steel-producing province of Hebei plans to cut total capacity by 60 million tonnes, the provincial governor said on Thursday, in a move aimed at consolidating and cleaning up the chaotic sector.

Hebei in northern China is thought to be responsible for about a fifth of the airborne pollutants that drift across the country's capital, Beijing, and bringing the province's ill-disciplined steel industry to heel is regarded as a key part of efforts to cut smog in the region.

"We want to reduce output by more than 60 million tonnes and through this our energy-saving and emission-cutting will greatly improve," Governor Zhang Qingwei told reporters on the sidelines of a meeting of the national parliament.

The steel sector is one of six major industries that will be targeted by the Ministry of Environmental Protection for "special emissions restrictions" beginning in April.

Zhang did not give a timeframe for the closures, but industry sources previously told Reuters the deadline for the capacity cuts would be 2020.

Reuters earlier reported that Hebei was under pressure to slash capacity in the province by at least 50 million tonnes to around 200 million tonnes and consolidate the sector under 15 large steel firms.

Overcapacity has been identified as one of the major challenges facing China's steel sector, with the China Iron and Steel Association routinely blaming small and privately-owned mills -- especially those in Hebei -- for "rampantly" expanding their facilities and eroding sector margins.

The long-awaited restructuring programme is expected to seek the closure or consolidation of thousands of small mills throughout Hebei, and is likely to strengthen the position of state-owned enterprises such as the Hebei Iron and Steel Group and the Shougang Group.

But Zhang rejected the idea that Hebei's privately-owned mills would bear the brunt of the restructuring programme, saying the government "would support those companies that do well, whether they are state- or privately-owned."

A government plan in January said China would aim to bring 60 percent of total steel production capacity under the control of its top 10, mostly state-owned, mills by 2015.

China's privately-owned mills produced 362 million tonnes of crude steel last year, about half of total national output, according to industry data. (Reporting by David Stanway; Editing by Clarence Fernandez)

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