February 13, 2017 / 3:46 AM / 2 years ago

China steel capacity rises in 2016, despite closures: Greenpeace

SHANGHAI (Reuters) - Chinese steel capacity in operation actually rose in 2016 after a high-profile closure program concentrated on shutting idled plants, environment group Greenpeace said on Monday.

A worker verifies a product at a steel factory in Dalian, Liaoning province, China September 1, 2016. China Daily/via REUTERS

China - the world’s top producer and consumer of steel - said early last year it would shut as much as 150 million tonnes of annual crude steel capacity over the next five years to tackle a supply glut that had encouraged a surge in cheap exports, exposing the nation to anti-dumping complaints.

The campaign to curtail steel capacity overlapped with the country’s war on pollution, with hundreds of poorly regulated mills blamed for much of the hazardous smog drifting across northern China.

“We believe that it’s above all in China’s self-interest to tackle the overcapacity problem, because of the tremendous health and environmental costs as well as associated financial risks,” said Greenpeace campaigner Lauri Myllyvirta.

In research conducted with Custeel, a consultancy affiliated with the China Iron and Steel Association (CISA), Greenpeace estimated that China’s operating capacity saw a net increase of 36.5 million tonnes in 2016, more than the entire annual production of Brazil.

While a total of 85 million tonnes of annual capacity was shut in 2016, exceeding a national target, the majority had already been idled. Only 23 million tonnes of the yearly capacity that was cut had been in operation.

Also, even though last year’s plan banned all new projects, Greenpeace said 12 million tonnes of new capacity went into operation during 2016.

Greenpeace estimated another 49 million tonnes of steel production was restarted over 2016 in response to a recovery in prices.

China’s industry ministry did not immediately respond to a request for comment. The National Development and Reform Commission (NDRC), which has driven the country’s overcapacity policies, also did not respond.

CISA had warned last year that capacity could increase further in 2016 as previously approved projects continued to come on stream.

Greenpeace said 80 percent of the net increase in capacity took place in the heavily-polluted regions surrounding Beijing, including Hebei province.

Hebei, China’s biggest steel producing region, aims to cut total capacity to less than 200 million tonnes by the end of the decade, down from 286 million tonnes in 2013. The province has promised to close 60 million tonnes of capacity from 2014 to the end of this year to improve air quality.

China’s total steel capacity stood at 1.1 billion tonnes at the end of 2015, according to official figures, a surplus of around 300 million tonnes.

Greenpeace’s Myllyvirta said that while gross capacity was likely to have fallen last year, operating capacity was estimated to have risen to 1 billion tonnes, from about 965 million tonnes.

“We hope that the worsening air pollution in north China ... and the government’s recent toughened stance on asset bubbles in heavy industry and construction will help align policies and bring local governments in line,” he said.

Xu Shaoshi, the head of the National Development and Reform Commission, China’s economic planner, told reporters last month that China would aim to shut another 45 million tonnes of annual steel capacity in 2017.

Reporting by David Stanway; Editing by Christian Schmollinger and Tom Hogue

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