Mainland pushes to close smaller steel mills in sector consolidation

PUBLISHED : Wednesday, 14 July, 2010, 12:00am
UPDATED : Wednesday, 14 July, 2010, 12:00am

China says it will intensify efforts this year to consolidate the steel industry.

In a policy document, the Ministry of Industry and Information Technology said the country would close mills producing less than one million tonnes of steel a year while tightening environmental standards and clamping down on old and inefficient operations.

In an effort to encourage mergers, small companies will be forced to close or merge while quality producers will be required to turn out more than 300,000 tonnes a year.

The regulations have been posted on the ministry's website and for the first time provide a threshold for the size of steelmakers.

The 69 members of the China Iron and Steel Association, which accounted for 85 per cent of the country's official steel output in the first five months of the year, will not be affected by the rules since they all produce more than one million tonnes of steel a year. But official figures are believed to understate actual production since there are many small illegal mills

About 75 per cent of blast furnaces are smaller than the 400 cubic metres permitted under existing regulations.

Industry minister Li Yizhong told a meeting in Dalian that regulations on financing and land use would be adjusted to encourage mergers.

Authorities have been talking about consolidating the steel industry for many years but have met with little success.

One of the main problems hindering consolidation is that steel mills are viewed as a source of employment and taxes by provincial authorities. Their interests are therefore frequently in opposition to those of the central government.

Efforts to close or consolidate mills have also led to violent opposition from workers.

Last year, a manager was beaten to death when thousands of workers at the Tonghua Iron & Steel mill, afraid they would lose their jobs, staged violent demonstrations.

Shortly afterwards, Henan province called off the sale of state-owned Linzhou Iron & Steel after protests by 3,000 workers fearing job losses.

Closing down steel mills means a drop in taxes and an increase in unemployment, and observers say that for this reason consolidation will take many years.

The nation's steel production has almost doubled over the past six years from about 300 million tonnes in 2004 to 580 million tonnes last year. But as production has increased, so has excess capacity.

Last year, the unused capacity amounted to 30 per cent which, according to a presentation by Urandaline Investments - an Australian-based commodities consultancy - exceeded Japanese production capacity. In the past 40 years, the consultancy noted, the mainland has added four times the capacity which took Japan 60 years to build.

Trouble at the mill

Plans are unpopular with workers and provinces

The number of major operators that will not be affected by the push towards mergers and closures: 69