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FEATURE: Relocation - boon or bane for China steelworks?

China wants more of its steelmakers to locate at the coastal areas - not just for their health but for everyone else’s. Begun tentatively a decade ago when land was needed for special events – the 2008 Beijing Olympic Games and Expo 2010 in Shanghai, to name but two – the relocation of steelmakers from city areas to coastal regions is now a heavily-promoted industrial guidance upheld by many local and provincial governments. Less widely publicized are the merits for the involved steel mills to get to know their new neighbours.

Take the case of Tangshan, China’s top steel producing city in North China’s Hebei province, where the progress to relocate no fewer than 13 steel mills from downtown addresses to coastal areas is gathering pace. Just last week, on April 22, Hebei province’s Industry and Information Technology Department announced that Hebei Tianzhu Iron & Steel Group, a second-tier steelmaker located in Tangshan’s Fengrun district, a city area, had agreed to build a new steel plant in Haigang, a coastal area 300 kms east of Fengrun.

The uprooting of steelmakers in Tangshan is just a snapshot of what steel producers elsewhere in China are experiencing, with the drive to vacate urban centres given new urgency from 2016 when Beijing released its industrial development guideline advocating the relocation of steel mills to places close to coastal ports.

In East China’s Shandong province, the cities of Ji’nan, Zibo, Dezhou and Binzhou were included in the environment ministry’s 2017 “2+26 cities” plan for smog reduction, prompting Shandong to decide on removing a total of 26.3 million tonnes/year steel capacity from seven of its cities. The Hebei province, with many of its cities in the plan too, is striving to phase out all steel capacities in the cities of Zhangjiakou, Langfang and Baoding, and to rebrand the trio as “zero steel cities”, as reported. Other provinces also joining the campaigns include East China’s Jiangsu and Jiangxi provinces and Central China’s Hubei, busy with moving their steel capacities around.

Chinese steel mills face growing pressure for relocation

Over 70% of Chinese steel mills are now located in downtown areas and their smokestacks are lightning rods for residents’ complaints when air quality is poor, Mysteel notes.

“Environmental concerns are mostly that are pushing governments to relocate steel mills,” Li Xinchuang, chairman of China Metallurgical Industry Planning and Research Institute, remarked at a conference in Nanjing, East China’s Jiangsu province, on April 28.

“These cities all stay at the bottom of (the Ministry of Ecology and Environment’s monthly) air quality ranking...Environmental protection pressure is the biggest headache for local government officials. The (pollutant) emissions of steel mills are the largest among industrial enterprises, so naturally, they become the targets for relocation or closure,” Li said.

Moreover, the ever-increasing value of the land patches close to the cities’ central business districts is another major factor prompting the mills’ relocation, according to a senior official from a steel producer based in Central China’s Henan province.

“When these mills were built many years ago, they were on the outskirts of the city. However, with the rapid pace of urban development, now the mills are located exactly in centre of the city and surrounded by inhabitants,” he said.

In the first quarter of 2019, the value of land for industrial use across China averaged Yuan 841 ($125)/sq m, higher by 16.6% from the same period a decade ago, according to the statistics from a research institution affiliated to China's Ministry of Natural Resources.

The permanent shutdown of the 6.6 million t/y Baosteel Stainless Steel Co last June, a subsidiary of China Baowu Group, in the Shanghai municipality, though the Baoshan area is not really at the centre of the municipality, is a perfect example of a steelmaker being overtaken by redevelopment even though the stainless and specialty steelworks had operated merely 17 years, as Mysteel Global reported.

“Baoshan district was once a suburban area of little significance to Shanghai’s economy, but with the development of Shanghai, it is now of great value and the municipal government is eager to grow the economy there too,” a Baosteel Stainless official commented at the time.

Is relocation beneficial to involved mills or to the steel industry in general?

“To each individual steel mill, being forced to relocate may not necessarily be beneficial, even if this means they are given the opportunity to equip themselves with up-to-date facilities and technologies,” a Hebei steel mill official commented.

“To China’s steel industry in general, this (relocation) is a good and a rather necessary step, as it will not only help improve air quality and cut excess steel capacity, but also facilitate raw materials transportation and government management,” he said, emphasizing, “such relocation should be planned carefully and comprehensively beforehand.”

Many other market insiders agreed, arguing that despite the urgency for mills to retreat from the downtown areas to industrial parks or coastal areas, any rush has only eventually hurt the development of steel companies, as observed from many relocation cases.

“Based on all the steel mills’ relocation cases worldwide, there has not been even a successful case, certainly not for those large steel producers to have relocated from the city centre,” maintained Li Lijian, chairman of Anyang Iron & Steel Group Co (Anyang Steel) in Henan province.

“This (the relocation of major integrated steel producers) usually requires a large pool of capital for rebuilding the production facilities, the recruitment of new employees and the compensation packages for the old employees that decide not to work at the new sites,” he told China Metallurgical News (CMN) in March.

CMN is regarded as the official voice of the China Iron & Steel Association.

In fact, the use of the term ‘relocation’ is a misnomer, argued the Henan-based senior mill official, as the essence of relocation is the construction of a brand-new steel mill and the removal of the old. “There is really not much for (steel enterprises) to relocate – just the converters or some rolling facilities at the most – whereas the blast furnace must be rebuilt,” he said matter-of-factly.

In fact, in a sobering critique of the relocation policy, CMN noted in an April 18 report that relocation of a steelworks will always result in losses of tens of billions of Yuan and changes of the lives of thousands of employees.

More crucially, seldom are these mills compensated by governments when they are ordered to relocate, according to a mill source in Hebei province, whose steel plant in the city centre was closed late last year upon the government command.

“To a very few, the government may provide a bit of subsidy, but to many, the subsidies are turn out to be empty promises, as the local authority does not have the bandwidth to provide much monetary compensation at all,” he said, and this is not untypical in such a context.

Before it was shut and its capacity ‘sold’ to other steelmakers, the Hebei source’s mill had been operating since 1993, boasting an 8.8 million t/y upstream steel capacity producing mainly hot-rolled strips, rebar, and hot-rolled and cold-rolled coils. How many of the nearly 15,000 employees were accepted by other steel mills or found jobs elsewhere - and how many, like him, have been unemployed since the closure - is unknown.

Many of the Chinese steelmakers ordered to relocate but lacked the funding had to borrow heavily to accomplish the mission, and ironically, have become the new “zombie enterprises” or have been restructured after declared bankruptcy with only a few spared of the fate, according to the CMN report.

Shougang Group, China’s sixth-largest steel company incorporated in 1919 in Beijing, is one of the lucky few that have survived because of the central government’s strong and persistent blood transfusion and policy support after its relocation.

The large steel producer was required to move its 8 million t/y steelmaking capacity out of Beijing by 2008 to Caofeidian, a coastal region under the Tangshan jurisdiction, so that the Chinese capital could host the Summer Olympics Games that year. After the relocation, the company suffered through huge losses over 2009-2012, with the total exceeding Yuan 10 billion.

Thanks to the support from the central government, in 2014 the SOE was able to snap out of losses and in mid-March, it blew in the third 5,500 cu m blast furnace at its new steelworks in Caofeidian, as Mysteel Global reported.

For many other steelmakers, however, moving has not led to a happy ending.Dalian Special Steel, a major specialty steelmaker in Northeast China’s Liaoning province, and Chongqing Iron & Steel Group, a ship plate maker in Southwest China’s Chongqing municipality, were among the unlucky many to have gone bankrupt and been restructured. Qingdao Special Steel Co in Shandong province saw all its equity injected into the state-owned investment company CITIC Group.

Many Chinese steel mills learning to co-exist with city

Instead of vying for relocation, some Chinese steel mills are finding ways to co-exist in harmony with city neighbours, just like many in countries such as Japan and Germany have done, market participants pointed out.

Anyang Steel, for example, located only 10km from Anyang’s city centre, is upgrading itself into a ‘garden steel mill’, Mysteel was told. “Previously, there were rumours that we would have been asked to leave the city centre, but they have gradually died down,” an official from the mill said, highlighting that this has great to do with Anyang Steel’s steady efforts in environmental protection.

During 2017-2018, the company invested a total of Yuan 5.6 billion in eco-technologies such as desulfurization and denitrification at coke ovens and sintering machines. The company’s pollutant emissions and other airborne matter including dust fell by 70% from 35 tonnes/day in 2016 to only 7 t/day in 2018, according to its chairman Li.

Since May 2018, Anyang Steel has invested another Yuan 1 billion in greenery for the mill, according to Li, which the mill official confirmed. “Because of the land limitation, we have knocked down some office buildings, consolidated some administrative departments to make up room for trees, flowers and grass,” he said.

Others applaud the efforts to go “green”, saying it is “essential”.

“Relocating steel plants is not the most efficient way to reduce pollution as the pollution may emerge at the new site,” Wu Yaofang, chairman of Jiangsu Yonggang Group Co in East China’s Jiangsu province, pointed out.

“The key lies in the government formulating emission standards and prompting the mills to find ways to meet these standards whether relocating or not, and the end should be a healthy and harmonious co-existence with the communities,” he suggested when interviewed by CMN in April.

In May 2018, China drafted new ultra-low emission standards for China’s steel industry, with the finalized details published on April 29 2019, illustrating that pushing Chinese steel mills to meet the ultra-low emission requirements is a paramount task for the industrial sector, and Beijing emphasizes in the guidance that all the relocation and new steel projects must meet ultra-low emission requirements. 

Written by Olivia Zhang, zhangwd@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com

Steel Mill

Old Address

Old Steel Capacity

New Address

New/Designed Steel Capacity

Shougang Group

Shijiangshan district, Beijing

8 million t/y

Caofeidain, Tangshan

13.7 million t/y

Chongqing Iron & Steel Group

Dadukou district, Chongqing

3.5 million t/y

Changshou district, Chongqing

8.3 million t/y

Dalian Special Steel Co

Ganjingzi district, Dalian, Liaoning province

500,000 t/y

Jinzhou district, Dalian

1.2 million t/y

Zhangdian Iron & Steel Factory

Zibo city area, Shandong province

/

Huantai Economic Development Zone, Zibo

2.2 million t/y

Valin-Xigang Special Steel Co

Wuxi city area, Jiangsu province

850,000 t/y

Jiangyin Economic Development Zone, Jiangyin city, Jiangsu province

2 million t/y

Guangzhou Iron & Steel Enterprises Group

Guangzhou city area, Guangdong province

5 million t/y

Zhanjiang city, Guangdong province

5 million t/y

Shougang Guiyang Special Steel

Guiyang city area, Guizhou province

500,000 t/y

Xiuwen county, Guiyang

2 million t/y

Qingdao Special Steel Co

Qingdao city area, Shandong province

4 million t/y

Dongjiakou port, Qingdao

4.17 million t/y

Shigang, HBIS

Shijiazhuang city area, Hebei province

2.16 million t/y

Huangye port, Cangzhou city, Hebei province

2 million t/y

Ma Steel (Hefei) Iron & Steel Co

Yaohai district area, Hefei city, Anhui province

2 million t/y

Hefei Circular Economy Demonstration Park, Hefei

2.37 million t/y

Sizhou Dazhou Iron & Steel Group

Dazhou city area, Sichuan province

3.2 million t/y

Dazhou Second Industrial Park, Dazhou

under planning

Hangzhou Iron & Steel Group

Hangzhou city area, Zhejiang province

4 million t/y

Ningbo city, Zhejiang province

/