Concerns over steel output in China's Tangshan hit coke, iron ore prices

BEIJING/SHANGHAI (Reuters) - A notice circulating in China’s steel industry that threatens output cuts between 30% and 50% for pollution defaulters in the top steelmaking city of Tangshan spurred concerns on Friday over demand for raw materials, pushing down prices.

FILE PHOTO: Birds fly over a closed steel factory where chimneys of another working factory are seen in background, in Tangshan, Hebei province, China, February 27, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Futures prices of iron ore and coke on the Dalian Commodity Exchange lost 4%, while coking coal gave up early gains in afternoon trade, reflecting market concerns about the plan.

Reuters was not immediately able to confirm the authenticity of the document doing the rounds of traders and analysts online, which says Tangshan city authorities are weighing plans to curtail steel mills’ output for the rest of 2021.

“To strengthen supervision of steel enterprises and raise punishment for illegal behaviour, the city government has... decided to impose production and emission cutting measures on firms that failed to take emergency action,” the notice said.

The Tangshan government did not immediately answer a call seeking comment.

Seven mills will cut production by half from Saturday until June 30, and by 30% in the second half of 2021, the notice said.

These include a stainless steel firm owned by HBIS Group, the Jinma Steel Group, Chunxing Special Steel and Donghua Steel, all recently reprimanded for breaking rules.

A production cut of 30% faces a further 16 long-process steelmakers, also from Saturday, but lasting until Dec. 31, it added.

Two mills owned by the Shougang Group will be exempt.

A source familiar with the matter said the plan was still at the draft stage. An official at one of the mills mentioned in the notice said it had not yet been received.

The action plan comes after investigation by the environment ministry revealed that some steel companies had failed to adopt emergency pollution measures, according to the notice.

The steel sector contributes 15% of total greenhouse gas emissions in China, which has pledged to cut steel output this year in a campaign to become “carbon neutral” by 2060.

Tangshan, located about 200 km (124 miles) from Beijing, the capital, produced 144 million tonnes of crude steel last year, or more than Japan, but it aims to get off the list of China’s top ten smoggiest cities this year.

If the draft plan is adopted, output of molten iron will fall about 22.23 million tonnes this year, which could slash iron ore demand by more than 35 million tonnes, analysts with the Mysteel consultancy estimated.

Capacity use rates at local blast furnaces fell 10.6% to 60.27% by Friday from last week, Mysteel data showed.

Reporting by Min Zhang and David Stanway; Additional reporting by Muyu Xu; Editing by Clarence Fernandez