NDRC working to slash steel production

PUBLISHED : Friday, 28 December, 2007, 12:00am
UPDATED : Friday, 28 December, 2007, 12:00am

The mainland's top state economic planning agency has called on provincial governments to shut 77.76 million tonnes of steel production at backward mills by 2010, about 14 per cent of the nation's current capacity, as part of its efforts to cut pollution and save energy.

Ten major steel-producing cities and provinces, including Zhejiang, Jiangxi, Hebei and Shandong, had shut 15.2 million tonnes of backward steel-making capacity by November, 63 per cent of the annual target, the National Development and Reform Commission said yesterday.

NDRC in April agreed with 10 local governments to close 24.23 million tonnes of backward steel capacity this year and a total of 41.67 million tonnes by 2010.

Yesterday it agreed with another 18 provincial governments including Guangdong, Sichuan and Hunan to close 36.1 million tonnes of capacity at obsolete steel mills by 2010.

Closures of low-grade blast furnace and steel capacity have made some progress but it 'requires more effort' to meet the annual target to phase out and eliminate more capacity, the commission said.

The mainland, the world's largest steel producer, aims to rein in energy-intensive and heavily polluting sectors, including steel, cement and aluminium, although it has faced resistance from local governments that rely on them for jobs and revenue, as well as the steel mills affected.

'It's quite an appropriate time to speed up the closures of outdated capacity as small players are now facing declining profit margins amid soaring raw materials costs; there will be lesser resistance,' said Zhao Zhicheng, an analyst at Essence Securities.

The price of spot iron ore has more than doubled this year to about US$200 a tonne while the price of coking coal has risen about 50 per cent to US$230 a tonne this year, squeezing small mills' profitability.

Mr Zhao said the closures of backward capacity will be positive for the whole industry as it could reduce excessive supply and help lift steel prices.

The mainland's steel industry produced a total of 446 million tonnes of crude steel in the first 11 months this year, up 16 per cent year on year.

In November, crude steel production only grew 4.6 per cent year on year to 39.7 million tonnes, the lowest monthly growth rate since 2003 as some small mills' capacity were idled because of high raw material costs.