October 30, 2017 / 7:17 AM / 2 years ago

Factories across China's industrial heartland struggle with soaring gas costs

BEIJING (Reuters) - Factories in China’s industrial heartland making everything from steel sheet to tofu and ceramics are struggling with soaring costs or facing closure as they wait for authorities to approve new gas-powered boilers, five industry executives told Reuters.

FILE PHOTO - Smoke rises from chimneys of a steel plant next to a viaduct on a hazy day in Tangshan, Hebei province February 18, 2014. REUTERS/Petar Kujundzic/File Photo

The problems illustrate the burden that is falling on China’s small- and medium-sized manufacturers because of Beijing’s radical shift from coal to natural gas and will raise concerns of insufficient power supply for industry.

China’s central government has ordered regions near the capital to shut 44,000 coal-fired boilers that provide steam and energy for factories, including steel rolling mills, ceramics and chemical manufacturers, and convert or replace them with gas-fired boilers or switch to electricity by the end of October.

The change is part of the government’s push to wean the country off coal and reduce the amount of smog emitted by its industries. Other measures include cutting steel and aluminum output and curbing construction in northern regions.

The city of Tangshan, in the province of Hebei which surrounds Beijing, set an earlier deadline of Oct. 9 for the conversions and said it would shut companies that did not comply. Tanghsan is China’s biggest steel-producing city.

“The price increases everyday. It is hard to say how long we can bear to run the operation,” said a sales manager at Xinyiyuan Steel Corp, a small steel rolling factory in Tangshan. She declined to give her name as she is not authorized to talk to the media.

An average 10-tonne natural gas boiler costs about 2,531 yuan ($381) per hour to run versus 909 yuan per hour for the same capacity of coal boiler, according to Reuters calculations based on spot gas and coal prices in China.

Rising demand for natural gas because of the switch has pushed prices higher, the sources said.

China meets some of its natural gas demand domestically but the country is importing more liquefied natural gas (LNG) to make up the shortfall. The spot price of LNG in Asia was at $9 per million British thermal units on Oct. 27, up 49 percent from Aug. 25, according to Reuters assessments.

However, even completing the conversion to gas in time has not prevented delays to resuming production.

Tangshan Ruilong Steel Corp may have a prolonged closure after its newly installed gas-fired boiler failed an inspection, said a Ruilong manager who gave his surname as Wang.

“It has been a month and we are still waiting for approvals from local the environmental bureau to reopen our business,” he said. He does not know the reason for failing the inspection.

In Henan province, another manufacturing center south of Hebei, a source at a tofu factory said his costs have jumped 12.5 percent to 18,000 yuan per tonne since switching to gas.

Residential users who are heating their homes for the first time with gas this winter will have supply priority over industrial users, increasing the possibility of power losses during gas shortages, experts and analysts have warned.

“It is wonderful from a social perspective, but from a business perspective, not so much,” said an Australian trader who buys ceramic tiles from Shandong.

Reporting by Muyu Xu and Dominique Patton; Additional reporting by David Stanway in SHANGHAI; Editing by Josephine Mason and Christian Schmollinger

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