New steel production capacity challenges China's pollution control plan
New steel production capacity challenges China's pollution control plan
Steel plant closures central to the Chinese government’s plan for cutting pollution are likely to be outpaced by steel mills under construction, casting doubt on Beijing’s ability to make headway against air pollution enveloping northern China.
On Wednesday, Beijing was again gripped by the thick grey pall that has lingered over northern China for more than a week. Public anger over air pollution has spurred the government to speed up the release of air monitoring data, and could strengthen the hand of environment alregulators in shutting down powerful polluters.
About 30m tonnes of new steel capacity across the country is still under construction, double the 15m tonnes of cuts pledged for 2014 by Hebei province, the industrial heart land surrounding Beijing which accounts for about a quarter of Chinese steel capacity.
Hebei agreed to the cuts as part of a national plan to reduce polluting emissions in the North China plain, where pollution regularly exceeds national standards.
State media showed footage of steel mills and cement plants being destroyed to underline the government’s resolve. About 8m tonnes of capacity have been permanently closed down in Hebei since the plan was announced.
But so far, it is the least powerful polluters that have taken it on the chin. “Generally speaking, the mills that have closed are older and unprofitable,” Wang Jiguang, a sales director at Hebei Iron and Steel Group, one of China’s largest steel producers, said at an iron or econference organised by Metal Bulletin in Beijing. “Most of them have actually been idle for six months to a year already due to economic reasons.”
Hebei pledged to cut its steel capacity by 60m tonnes by 2017, as part of a negotiated deal to reduce emissions in northern China, the Yangtze Delta and the Pearl River Delta while encouraging industrial investment in the arid west.
Meanwhile, the central government set up a $1.6bn fund to reward industry that complies with emission cuts, in recognition of the local jobs and taxes generated by polluting companies. It is expected to transfer about $330m to Hebei province, which is also the source of most of Beijing’s power supply.
Past attempts by central planning agencies to reduce industrial capacity by fiat have similarly ended in tears, as plant bosses and the banks that lend to them almost always chose to expand rather than face closure.
Allowing the market to cull the inefficient producers has proved even more difficult in China, as state-owned steel companies are generally the worst performers. Nearly every inland steel producer with more than 5m tonnes of capacity – in other words, at least a dozen of China’s biggest and most politically powerful mills – are losing money, according to industry expert XuZhongbo of Beijing Metal Consulting Ltd, with the exception of mills that have invested in automotive steel.
Policies directly tied to reducing pollution rather than cutting industrial capacity have generally been more effective. For instance, about a decade ago China ordered the phase-out of the heavily polluting Soderberg process at aluminium smelters, and smelters were duly upgraded.
Power plants across China have installed emissions scrubbers, and have become more willing to use them in recent years after power subsidies were tweaked to reward their operation.
