October 18, 2018 / 6:32 AM / a month ago

Mills in China's top steel city boost output despite winter ban start

BEIJING/MANILA (Reuters) - Steelmakers in Tangshan, China’s biggest steel producing city, are boosting output as local officials have failed to issue precise orders on output curbs even though the city’s winter pollution restrictions took effect two weeks ago.

FILE PHOTO: A worker walks on a pile of steel pipes at the yard of Youfa steel pipe plant in Tangshan in China's Hebei Province November 3, 2015. REUTERS/Kim Kyung-Hoon/File Photo

The rising output means factories and steel plants are emitting more pollutants and Tangshan’s lack of guidance shows that the Chinese central government’s more nuanced approach to pollution curbs may not be working as intended.

On Sept. 27, China’s Ministry of Environment and Ecology issued new winter anti-pollution plans that allowed provinces and cities to set their own industrial output curbs as a way to limit pollution, moving away from blanket cuts ordered last year.

Tangshan finalised its own winter plan on Sept. 19 that would put companies into four categories based on their emissions output with the companies having to cut their output by between 30 percent and 70 percent based on the category they fall under. The plan will run from Oct. 1 to March 31, 2019.

However, Tangshan has not issued a list of the sorted companies, according to multiple sources with knowledge of the matter, meaning no one knows their expected output curbs.

Without the guidance, at least two steel producers in Tangshan said they have been operating normally since the start of the month.

“Everyone is still waiting for instructions, but no word has come out yet,” said one of the sources, a manager at Hebei Donghai Special Steel Co, a privately owned mill with annual capacity of 10 million tonnes.

“Apart from recent emergency anti-smog measures and scheduled maintenance, we did not slow operations after the extended summer cuts expired in September,” said a manager for raw materials at Guofeng Iron and Steel Co which has annual capacity of 3 million tonnes.

A person at the Tangshan city government public relations department said that they would ask the relevant department about the issue when contacted on Wednesday by Reuters for a comment.

HIGHER SUPPLY

The utilization rate at blast furnaces in Tangshan climbed 1.2 percentage points from late September to 61.59 percent on Oct. 12, the highest since late July, according to data compiled by Mysteel consultancy.

As Tangshan mills ramp up steel output to chase strong prices, other producers could follow and supply from Hebei province - where Tangshan is located - could rise as it enforces more lenient cuts, said Richard Lu, an analyst at CRU consultancy.

“Steel supply from Hebei might be higher than last year, but it is still uncertain if total supply across China will go up as well, since more regions would be included into the winter pollution campaign this year,” said Lu.

Average profit margins at steel mills across China are over 1,000 yuan ($144) a ton, according to Huatai Futures.

China last winter ordered mills in 28 northern cities to cut output by up to half, causing steel prices to rise 54 percent in 2017. This year prices are up 20 percent.

For 2018, the curbs will still cover the 28 cities though there are also draft rules to include another eight cities in the Yangtze River Delta and 11 cities in northwestern China.

In Tangshan, the district of Guye ordered a cut of 50 percent of industrial capacity at its steel mills from Oct. 11 to Nov. 14, the district said in a statement last week.

The district will adjust the reduction rate after city authorities give detailed instructions, the statement said.

Tangshan was ranked as China’s smoggiest city in September among 169 tracked by the Ministry of Ecology and Environment, the ministry said in a report on Thursday.

Reporting by Muyu Xu in BEIJING and Manolo Serapio Jr. in MANILA; Editing by Christian Schmollinger

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