UPDATE 1-Hebei Iron & Steel says new project ban to help relieve oversupply

Wed Feb 26, 2014 12:24am EST

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By David Stanway

BEIJING Feb 26 (Reuters) - A vow by China to ban new steel projects until 2017 will help to relieve oversupply in the bloated sector but the policy will take time to have an effect, China's top steel maker said on Wednesday.

New steel capacity addition in China is still exceeding the tonnage due to be shut this year, Wang Jiguang, director of Hebei Iron and Steel Group's sales unit, told a Metal Bulletin conference in Beijing.

Overcapacity has dogged China's steel sector for years, wasting resources and causing big losses at heavily indebted mills, forcing them to rely on government subsidies.

Beijing has vowed to tackle the problem and said last week that it will ban new projects in industries such as steel and cement until 2017, while gradually eliminating existing operations that are below-standard.

"The government has put new capacity construction under strict controls and from now on the amount of additional capacity will be very small," Wang said.

But there would be a lag before the policy started to bite.

Wang said 30 million tonnes of production capacity was currently under construction, having been approved before the ban was put in place. Top producing Hebei province will only close about 15 million tonnes of capacity this year, he said, without giving figures for the rest of China.

China has around 300 million tonnes of surplus steel capacity, equal to nearly twice the European Union's total output last year. Still, mills have continued to expand, adding 69.2 million tonnes of new capacity in 2013, according to a report this month by consultancy CUsteel.

Wang said state-owned Hebei Group's utilisation rate for crude steel production capacity stood at about 80 percent in 2013, but the rate for some steel products was as low as 60 percent.

China's top steel association said this week the industry will not see a quick end to its troubles due to the level of overcapacity.

Efforts to consolidate the industry have also been hampered by corruption and heavy losses.

Hebei Iron and Steel, mired in losses, replaced its chairman in December. The firm's new chairman Yu Yong said profits and resources in some of its subsidiaries had been embezzled, according to a statement on the group's website.

Local media reported last month the company was undoing a government-backed consolidation that saw it take stakes in 12 private firms because it wanted to focus on managing its own assets to return to profit. Difficulities in consolidating the fragmented industry would make the market more competitive and more difficult to control.

Hebei province, which has an annual steel production capacity of 250 million metric tonnes, accounts for about a quarter of China's capacity, which stood at 1.04 billion tonnes last year.

As part of a broader plan to tackle overcapacity and clean up the environment, the government will shut 89.3 million tonnes of outdated steel mills in the northern cities and provinces by 2017 at the latest.

(Writing by Fayen Wong; Editing by Richard Pullin)

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