April 29, 2008 / 8:49 AM / 12 years ago

China steel mills seek sweetener for Olympic closure

BEIJING, April 29 (Reuters) - Chinese steel mills around Beijing are holding out for subsidies in return for agreeing to shut down or reduce operations during the Olympic Games in August, the head of the China Iron and Steel Association said on Tuesday.

Determined to crown the Games with blue skies, Beijing has already ordered its top polluter, Shougang Steel, as well as other factories and power units to shut for two months from late July to late September.

Although authorities have said emissions restrictions would apply to six surrounding regions, with further measures to come if smog fails to clear, they have yet to release any detailed shutdown orders. “The mills are doing this as part of their responsibility to serve the national need, so it’s natural they should get something as compensation,” the association’s secretary general Luo Bingsheng said.

Mills were seeking direct subsidies, he said, adding that he could not yet estimate how much production capacity would be shut during those two months.

Widespread closures of steel mills and other heavy polluters could reduce electricity demand in the north and cause prices for iron ore and other raw materials to dip.

Beijing itself only accounted for about 4 percent of China’s GDP in 2006, so the impact of shutdowns depends on their extent, particularly in the Tangshan region of Hebei. Tangshan accounts for about one-tenth of China’s steel output.

A surge in Chinese steel output in March, to a record 44.9 million tonnes, could mean that some mills are building stocks of reinforcing bar and other products in order to meet sales commitments if they are forced to shut.

But mills’ ability to withhold stocks is limited by cashflow problems, due to a credit crunch coupled with high raw materials costs.

Beijing would not want millions of idle workers in the streets of China’s gritty northern cities, so mills would probably be required to maintain pay and provide entertainment for their workforce, a metals trader said. (Editing by Edmund Klamann)

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