Heavy losses and strict environmental laws forces Chinese steel mills to go for closure despite not so easy exit mechanisms.
Sluggish demand and overcapacity finally took a toll on Chinese steel industry. According to CISA (China Iron and Steel Association), apparent steel consumption in China fell 5.7% to 591 MnT in the first 10 months of 2015.
Low demand has led to fall in steel prices of more than 30% since January. Following this, many Chinese mills have announced closure or suspended their production this year.
As reported, a total of USD 4.4 bn has been reported in first 9 months of 2015. While, steel mills having total capacity of 50 MnT, has been closed since January. Besides, mills having total capacity of 13.21 MnT have suspended their production till date.
Exit mechanism
The exit process for steel biggies in China is not easy as large capital investments, huge debts and giant workforce need to be care if a company goes in for liquidation.
While, there are procedures to liquidate plants; bankruptcies have been rare as local authorities of a particular province are reluctant to handle rising unemployment and prefer lenders to restructure debts.
Stricter environmental laws
China has launched stricter environmental laws in order to control increasing air pollution caused due to usage of coal in steel making.
Tangshan city of China, which produces more steel in a year than US, has pledged to reduce its annual crude steel capacity by one fifth of its total by 2017 in order to control oversupply and tackle with increased air pollution.
Till now, about 14.97 MnT of steel capacity has been reduced in Tangshan. Statistics shows that the total steel capacity in Tangshan was 130 MnT in the end of 2014, which meant about 11.5 % capacity has been cut till date.
Shanghai based BaoSteel Group Corp chairman foretasted that steel production in China may shrink by 20% in coming years following current situation in China.
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