Pollution heads south to Shanghai as steel mills driven from Beijing's environs

Clean air campaign sees steel mills move closer to commercial capital

PUBLISHED : Friday, 03 January, 2014, 2:13pm
UPDATED : Saturday, 04 January, 2014, 2:03am

Chinese steel production is moving from its heartland in Hebei province in the wake of government efforts to tackle pollution near Beijing, but Shanghai could be paying the price as steel mills around the commercial capital ramp up output.

Stricter environmental checks in Hebei have also created opportunities for polluting industries such as cement and glass-making plants in provinces near Shanghai.

While air pollution rates in Beijing and nearby cities in Hebei have been relatively low over the past month, index readings in Shanghai and elsewhere on the eastern coast have hit record highs.

Following Beijing’s lead to eliminate steel production in the city, Shanghai cut its steel output by more than 10 per cent last year. But it could be suffering owing to rising production in surrounding provinces such as Jiangsu, where small mills are taking advantage of a sustained government effort to shut plants in Hebei.

Steel output fell sharply in Hebei at the end of last year but rose in Jiangsu, Anhui and Zhejiang provinces, all near Shanghai, according to data from the National Bureau of Statistics.

“We’ve seen production in Hebei dropping quite dramatically,” said Graeme Train, a Shanghai-based commodities analyst with Macquarie.

“It could be that they reduce pollution in Hebei and it just pops up again here in Shanghai. What it does tell us is that China has a hell of a lot of steel capacity.”

Environmentalists have said China’s campaign to improve air quality in major northern cities such as Beijing is likely to mean the relocation of big polluting industries in the steel, cement and thermal power sectors. The most favoured destination is China’s less-developed interior provinces, some of them around Shanghai.

Hebei, a major industrial region that surrounds Beijing, was home to some of the most polluted cities in China. Its capital, Shijiazhuang, routinely recorded “beyond index” measurements of particulate matter (PM) early last year.

The province was also identified by the China Academy of Sciences as a major source of a noxious smog cloud that hung over Beijing a year ago.

China has since vowed to tackle pollution in Hebei, saying in a wide-ranging action plan in September that it would ban new projects in certain industries, close outdated steel and cement facilities and slash coal use.

It could be that they reduce pollution in Hebei and it just pops up again here in Shanghai
Graeme Train, Macquarie

Hebei has promised to cut total steel capacity by 86 million tonnes, about 40 per cent of last year’s production, by 2020. Official data suggests that is starting to happen.

In November, crude steel output fell 24.41 per cent from October. At the same time, Hebei’s share of national output fell to 18.84 per cent in November versus 24.9 per cent for the first 11 months of the year.

It also saw a 15 per cent decline in power generation from January to November, official data showed.

Jiangsu’s share of total steel output rose to 11.4 per cent in November with production volumes up 10.62 per cent in the first 11 months of the year.

China’s second-biggest steel producing province after Hebei, Jiangsu produced 74.2 million tonnes in 2012, up 8 per cent on the year and accounting for 10.35 per cent of the country’s total.

“There are a lot of small private mills in Jiangsu,” said Train. “The government isn’t putting as much pressure on them as they are in Hebei – but that could easily change.”

In November, there were also increases in steel output from Liaoning province in the northeast of China and also in Shanxi.

Other polluting industries have also been affected.

Cement output in Hebei dropped 20 per cent in November from October and fell 1.82 per cent in the first 11 months of the year. Meanwhile, production in Jiangsu, China’s biggest cement producer, rose 8.3 per cent in November from October, or 8 per cent in the first 11 months.

Production in Zhejiang, Anhui and Jiangxi also jumped between 11 per cent and 30 per cent in November.

Air pollution in Shanghai could also be affected by increased manufacturing activity in the Yangtze River Delta, which encompasses provinces such as Jiangsu and Zhejiang.

Output of copper and aluminium products as well as flat-glass in Zhejiang, Jiangsu and Anhui all posted double-digit gains in the first 11 months of the year.

“Many copper and aluminium products manufacturers have ramped up production because of better demand and a stronger economy,” said Feng Juncong, an analyst at state-backed Antaike Research.

“The pick-up in manufacturing activity and smelting capacity may have contributed to the worsening smog in Shanghai.”