* No indications of shutdowns spreading beyond Hebei for now
* Wu'an closures expected to last only half a month
* Shanghai rebar off 2 pct from 11-week top
By Ruby Lian and Manolo Serapio Jr
SHANGHAI/SINGAPORE, Dec 17 Steel producers in
top market China may face more shutdowns next year as the
government steps up its fight against air pollution, although
recent closures in the Hebei province have been restricted to
the key producing region for now, sources said.
Last week's order to shut some facilities in Wu'an city in
southern Hebei to curb power use had stoked steel output
worries, pushing Shanghai rebar futures to 11-week
highs. But prices have come off almost 2 percent since then on
expectations the closures will last for only about 15 days.
The latest drive is part of China's efforts to combat
pollution, unlike a 2010 campaign when mills in Hebei, Shandong
and Henan provinces were ordered to slash output from September
as Beijing raced to meet a five-year energy efficiency target.
Hebei produces about a quarter of China's crude steel
output, which hit a record 716.5 million tonnes last year and is
forecast to rise to 780 million this year.
But output may suffer next year as China aggressively
enforces more pollution control measures and focuses on
industries like steel where there is an estimated overcapacity
of around 200 million tonnes.
"This temporary shutdown should not have any significant
impact on steel output this month but we are afraid that Beijing
might take more measures targeting steel mills next year to ease
air pollution," said an official with a steel mill in Wu'an.
"The government can't just shut down everything as this will
cause social instability and high unemployment rate, but they
will do it step by step, and it's a gradual, long-term process."
China's large steel mills had only seen an average profit
margin at 2.99 percent for the first three quarters of this
year, far lower than the average 6-7 percent margin for the
whole manufacturing industry, according to state-owned media
Xinhua, citing the China Iron and Steel Association.
If China follows through in closing mills that fail to meet
pollution control standards and regularly inspects the approved
ones, it could mark a "turning point" in both the enforcement of
environmental standards as well as management of overcapacity,
Citigroup analyst Ivan Szpakowski said.
"We expect such environmental driven short-term closures to
occur more frequently going forward," Szpakowski said.
So far closures have mostly been in Wu'an, which has an
annual capacity of around 40-50 million tonnes, where mills have
started shutting down rolling lines and brought forward annual
maintenance on blast furnaces since last week.
Rolling lines process semi-finished steel products to
finished products like wire rod used for construction, while
blast furnaces, fed by iron ore and coke, produce pig iron.
Calls to the local government, which issued the order, were
not immediately answered.
Other cities like Tangshan, another major steel producing
hub in Hebei, have not taken any similar measures yet.
(Editing by Himani Sarkar)