China's steel sector still battling rising illegal capacity

QINGDAO, China (Reuters) - Top global steelmaker China, despite years of trying to curb overcapacity in its steel sector, is still having trouble containing increasing illegal new capacity, a Ministry of Industry and Information Technology official said on Thursday.

FILE PHOTO: A worker walks past steel rolls at the Chongqing Iron and Steel plant in Changshou, Chongqing, China August 6, 2018. REUTERS/Damir Sagolj/File Photo

The ministry is conducting audits to curb outdated capacity and resolve the overcapacity problems, Xing Tao, deputy director of the ministry’s raw materials department, said at an industry conference, without giving further details.

Xing said the illegal new mills include those not approved by the government, outdated mills that had reopened after being shut, and mills that were supposed to be shut in capacity swaps, in which companies move plants to other regions to reduce the concentration of production in polluted industrial areas.

Some smaller steel plants have also taken advantage of lax environmental enforcement to ramp up production ahead of bigger rivals, industry and government officials have said, jeopardizing national anti-smog targets and defying industry consolidation.

Xing did not give any figures for how much more illegal steel capacity China is trying to shut down.

China has shut 700 small steel mills with 140 million tonnes of steel capacity deemed sub-standard, plus 150 million tonnes of inefficient capacity at larger firms, in a four-year campaign against pollution and excess capacity in heavy industries.

But despite the efforts to control capacity, China’s steel production continues to climb.

China produced 87.25 million tonnes in August, data from the National Bureau of Statistics (NBS) showed, up 2.4% from 85.22 million tonnes in July and up 9.3% from a year earlier.

It churned out a record 928.26 million tonnes of crude steel in 2018, up 6.6% from 2017.

China’s steel production has been strong this year despite relatively thin margins, supported by firm demand from sectors such as property and infrastructure as Beijing looks to bolster its economy amid a trade war with Washington.

China is also planning to speed up mergers and restructuring for steel industries, Xing said, in a national effort to consolidate its steel sector.

Beijing has said it plans to put 60% of China’s total steel capacity in the hands of its top 10 producers, up from about 40% now.

Reporting by Min Zhang and Shivani Singh; Additional reporting by Muyu Xu,: Editing by Rashmi Aich and Tom Hogue