TANGSHAN, China May 16 Credit controls imposed on China's debt-ridden steel sector have left many producers unable to afford upgrades needed to survive the country's war on pollution, and 80 million tonnes of capacity could shut in two years, an industry official said.
Zhao Xizi, chairman of the All-China Chamber of Commerce for Small and Medium-Sized Metallurgical Enterprises, said that in some regions, around 70 percent of firms could not pay for the renovations needed to meet tough new environmental standards, and with loans to the steel sector cut by around 10 percent since the beginning of the year, banks have been unable to help.
Poor economic conditions and chronic overcapacity brought Chinese steel prices to their lowest point in 20 years in the first quarter of this year, and a nationwide campaign to tackle pollution has also raised costs and helped put hundreds of plants on the brink of bankruptcy.
Zhao, speaking on Thursday at a conference in Tangshan, China's biggest steel producing city, said as much as 80 million tonnes could be forced to shut in the next two years alone, meaning that China will meet its closure targets with relative ease.
"You can draw this conclusion: if all these policies are brought in and all local governments implement them, there will be a large number of enterprises forced to close this year and next year, involving 80 million tonnes of capacity," he said.
He said from the second half of this year, around 200 private steel firms with capacities of less than 1 million tonnes a year would face power and water prices designed to drive smaller players out of the market, putting 60 million tonnes of capacity at risk of closure.
An additional 70 million tonnes of low-quality steel production is also expected to be shut and replaced, he said.
Hebei province, home to at least 300 million tonnes of production capacity, is planning to shut 60 million tonnes over the 2014-2017 period in order to meet its anti-pollution commitments. It will close 15 million tonnes this year.
The provincial governor, Zhang Qingwei, said earlier this year that as many as 16 steel firms in Hebei had already ceased production because of financial difficulties.
While China plans to cut its steel capacity by a total of 27 million tonnes this year, it still saw a net capacity increase of 4.68 million tonnes over the first quarter, Zhao said.
China's total steel production capacity is estimated at around 1 billion tonnes, much higher than last year's total output of 779 million tonnes.
(Reporting by David Stanway; Editing by Joseph Radford)