In a draft proposal for emissions control during the winter heating season prepared jointly by China’s industry and environment ministries, it has been proposed to implement a 50% winter pig iron production cut in some of the north China cities this year starting from 1 October, 45 days earlier than it did in 2017.
As per the proposal, cities of Tanjin, Shijiazhuang, Tangshan, Handan, Xingtai and Anyang are expected to cut their blast furnace steel output by 50% whereas at least at least 30% output is expected to be cut in 22 other cities in the region. Cities’ government will be allowed to raise this output cuts limit further.
Steel mills that meet the ultra-low emissions regulations, which are expected to be made compulsory in Hebei from October, may be spared from the production cuts. However, during higher levels of pollution alerts, these mills will also be required to operate at 50% of their blast furnace capacity.
Apart from the restrictions on blast furnaces, iron ore sintering and coking equipment will also be suspended to the extent of a loss of pig iron output in each mill, a policy measure not implemented last year. Coal-fired casting equipment, other than electric arc furnace and natural gas-fired furnace, will have to be suspended in the winter and autumn months this year.
Restrictions on sintering and coking will exert additional pressure on steel output, scrap rates in BOFs are already high and further increases may be too expensive. This coupled the higher number of days of restriction will have a wider impact on China’s steel production output.
High chances of this proposal turning into a reality
Last year saw 28 cities enforce a 50% production cut in the autumn and winter months. However, Steel output cuts this year may be enforced on up to 80 cities, including in the South China’s provinces of Jiangsu, Shaanxi and Shanxi.
The production cuts will possibly be implemented from 1 Oct’18 instead of 15 Nov’18 as was done last year, while the restrictions may be lifted on 31 Mr’19 instead of 15 Mar’19. September and October are peak sales months for steel mills with sales usually dipping in the winter months starting from November.
According to the market sources, the chances are high that this proposal will turn into actual policy. Although the Chinese government has sought views of steelmakers on the proposal, the revision of the same is highly unlikely. The draft proposals only cover the north China’s key steel production region of Beijing-Tianjin-Hebei but final output restriction proposal on 80 cities will also be made public shortly.
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