Shanghai paying price of China's campaign against industrial pollution

Thu Jan 2, 2014 4:00pm EST

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By David Stanway
    BEIJING, Jan 3 (Reuters) - Chinese steel production is
moving from its heartland in Hebei province in the wake of
government efforts to tackle pollution near Beijing, but
Shanghai could be paying the price as steel mills around the
commercial capital ramp up output.
    Stricter environmental checks in Hebei have also created
opportunities for polluting industries such as cement and
glass-making plants in provinces near Shanghai.
    While air pollution rates in Beijing and nearby cities in
Hebei have been relatively low over the past month, index
readings in Shanghai and elsewhere on the eastern coast have hit
record highs. 
    Following Beijing's lead to eliminate steel production in
the city, Shanghai cut its steel output by more than 10 percent
last year. But it could be suffering due to rising production in
surrounding provinces such as Jiangsu, where small mills are
taking advantage of a sustained government effort to shut plants
in Hebei.   
    Steel output fell sharply in Hebei at the end of 2013 but
rose in Jiangsu, Anhui and Zhejiang provinces, all near
Shanghai, according to data from the National Bureau of
Statistics.
    "We've seen production in Hebei dropping quite
dramatically," said Graeme Train, a Shanghai-based commodities
analyst with Macquarie Group. 
    "It could be that they reduce pollution in Hebei and it just
pops up again here in Shanghai. What it does tell us is that
China has a hell of a lot of steel capacity." 
    Environmentalists have said China's campaign to improve air
quality in major northern cities such as Beijing is likely to
mean the relocation of big polluting industries in the steel,
cement and thermal power sectors. The most favoured destination
is China's less-developed interior provinces, some of them
around Shanghai.
    Hebei, a major industrial region which surrounds Beijing,
was home to some of the most polluted cities in China. Its
capital Shijiazhuang routinely recorded "beyond index"
measurements of particulate matter (PM) in early 2013.
    The province was also identified by the China Academy of
Sciences as a major source of a noxious smog cloud that hung
over Beijing a year ago. 
    
    ACTION PLAN
    China has since vowed to tackle pollution in Hebei, saying
in a wide-ranging action plan in September that it would ban new
projects in certain industries, close outdated steel and cement
facilities and slash coal use. 
    Hebei has promised to cut total steel capacity by 86 million
tonnes, about 40 percent of last year's production, by 2020.
Official data suggests that is starting to happen.
    In November, crude steel output fell 24.41 percent from
October. At the same time, Hebei's share of national output fell
to 18.84 percent in November versus 24.9 percent for the first
11 months of 2013.
    It also saw a 15 percent decline in power generation from
January to November, official data showed. 
    Jiangsu's share of total steel output rose to 11.4 percent
in November with production volumes up 10.62 percent in the
first 11 months of 2013.
    China's second-biggest steel producing province after Hebei,
Jiangsu produced 74.2 million tonnes in 2012, up 8 percent on
the year and accounting for 10.35 percent of the country's
total.        
    "There are a lot of small private mills in Jiangsu," said
Train. "The government isn't putting as much pressure on them as
they are in Hebei - but that could easily change."
    In November, there were also increases in steel output from
Liaoning province in the northeast of China and also in Shanxi.
(The table shows November crude steel production by selected
provinces)
    
    OTHER FACTORIES RAMPING UP OUTPUT
    Other polluting industries have also been affected.
    Cement output in Hebei dropped 20 percent in November from
October and has fallen 1.82 percent in the first 11 months of
2013. Meanwhile, production in Jiangsu, China's biggest cement
producer, rose 8.3 percent in November from October, or 8
percent in the first 11 months of last year.
    Production in Zhejiang, Anhui and Jiangxi also jumped
between 11-30 percent in November.
    Air pollution in Shanghai could also be affected by
increased manufacturing activity in the Yangtze River Delta,
which encompasses provinces such as Jiangsu and Zhejiang.
    Output of copper and aluminium products as well as
flat-glass in Zhejiang, Jiangsu and Anhui all posted
double-digit gains in the first 11 months of last year.
    "Many copper and aluminium products manufacturers have
ramped up production because of better demand and a stronger
economy," said Feng Juncong, an analyst at state-backed Antaike
Research.
    "The pick-up in manufacturing activity and smelting capacity
may have contributed to the worsening smog in Shanghai."
            
 Province   Nov       Nov %     Jan-Nov    Jan-Nov %  2012 %
            output    share of  output     share of   share of
            (mln T)   total     (mln T)    total      total
 TOTAL      60.87     100       712.86     100        100
 Hebei      11.47     18.8      177.68     24.9        25.2
 Jiangsu     6.92     11.4       75.02     10.5        10.4
 Liaoning    5.06      8.3       54.77      7.7         7.2
 Shanxi      3.62      5.9       40.91      5.7         5.5
 Hubei       2.54      4.2       26.44      3.7         3.9
 Anhui       1.99      3.3       21.47      3.0         3.0
 Tianjin     1.80      3.0       21.11      3.0         3.0
 Shanghai    1.32      2.2       16.42      2.3         2.7
 Source: National Bureau of Statistics 
     

 (Additional reporting by Beijing newsroom and Fayen Wong.
Editing by Dean Yates)
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