Chinese steel mills’ reaction varied to the possible “differentiated” curbing measures among them during the 2018 winter months, with some applauding the fairer touch while others concerned about the loopholes when inquired by Mysteel on Wednesday.
China’s Ministry of Ecology and Environment called for the local authorities at a government meeting on August 31 to avoid the “one-for-all” restriction on polluting industries during the winter months, instead they should be more conscious of each enterprise’s status quo and customize individual capacity cuts or curbing measures.
Among the polluting industries are steel, coking, glass, cement, and construction materials.
“Beijing has come to realise the infeasibility of a single measure to all the steel mills, which is really unfair especially for many large-size mills like us that have met all the strict environmental protection standards via heavy investments, and we are bearing much higher costs during the cuts,” an official from a major steel mill in North China said.
Over November 15 2017-March 15 2018, China adopted a unified 50% blast-furnace capacity cut for the first time on all the steel mills in Shijiazhuang, Tangshan, Handan and Anyang, all being among the “2+26” cities, for example, to improve air quality in the Beijing-Tianjin-Hebei area.
Air pollution usually gets worse in winter months as coal-fired central heating service is a must to the residential households in the Chinese regions to the north of the Yangtze River.
On the other hand, customized solution may be risky in that it may create ‘loopholes’ in governance, an official from a major steel mill in Central China shared his concerns, even though Beijing may still grant explicit targets to different cities, the same as last year.
“This may create a series of problems, as governing authorities at lower levels within the same province, now with room to manoeuvre, may bargain for or apply lower cuts to their local mills out of their economic interests if the guidelines are not clear-cut enough,” he said.
2018 winter restriction on steel mills to be harsher
In general, though, Chinese steel market do not expect “customized restriction plans will lead to any leniency in curbing efforts”, instead, they anticipate harsher curbing efforts from Beijing this winter in comparison with last year though details regarding the restriction in 2018 winter may only be available in early October, as the Central government just launched a three-year “Blue Sky Safeguard” initiative in 2018.
There is already market speculation that Tangshan, China’s top steel production base in Hebei province, may kick off the restrictions on the steel mills as early as on October 1 in 2018 instead of November 15 as in 2017.
“Cities with their air quality readings at the bottom of the 169-city list released by Beijing every month will probably be under greater pressure,” a market source in Handan, north China’s Hebei said.
Handan, a key production base of wire rod and medium plate in the province, was ranked 159 among the 169 cities, according to the latest release by MEE on September 7, and Tangshan appeared at the bottom of the list for a few months so far this year.
Chinese steel mills to practise self-discipline
Notwithstanding the government efforts, market sources agreed that Chinese steel mills have been more self-disciplined after the suffering because of oversupply and unorderly output over 2012-2015.
“I don’t think steel enterprises will resume production frantically even if policy relaxes a bit, as they are more conscious of environmental protection after rounds of government inspections and emergency curbing now and then,” a senior official from a steel mill in Hebei said.
“Besides, we have been rewarded greatly in the past two years with handsome profits because of the capacity curtailments, we will not attempt to spoil the current supply and demand balance,” she added.
Since 2017, Chinese steel mills’ margin in steel sales have been steady at Yuan 600-1,000/tonnes ($88-146/t) mainly due to Beijing’s resolve in supply-side reform and the closure of induction furnaces that produced sub-quality long steel products.
Written by Olivia Zhang, firstname.lastname@example.org
Edited by Hongmei Li, email@example.com