After years of weeding out “zombie” mills and permanently shutting idled plants, provincial authorities in China have ordered steel mills, including some owned by HBIS Group, the world’s fourth-largest steelmaker, in almost a dozen of its smoggiest cities to either shut or move to a new industrial park on the coast or get out.
According to a statement from the National Development and Reform Commission (NDRC) in April, one of the priorities of the government this year is to capitalize on top steelmaking regions, including the Yangtze river delta, around Shanghai on the eastern coastline; the Jingjinji metropolitan region around Beijing in the north; and the Fenwei Plain region comprising the Shanxi, Shaanxi and Henan provinces further inland.
Now, the market experts are of the opinion that the country’s steel producers will benefit from a plan to relocate steel production capacity from inland to coastal areas by reducing transportation costs and meeting emission requirements under the country’s pollution crackdown.
Since 2016 about 150 MnT of steel capacity in China have been eliminated as a part of supply-side structural reforms while about 100 MnT of steel mills across the country have been ordered to move to coastal areas from inland regions suffering from serious environmental pollution problems.
Out of this 100 MnT capacity, Shandong Iron & Steel Co. Ltd. is shifting capacity to Rizhao, a city in south-eastern Shandong province. In the eastern province of Jiangsu, China Baowu Steel Group Corporation Ltd.’s unit Baosteel Group Shanghai Meishan Co. Ltd is moving from the province’s capital Nanjing to the coastal city of Yancheng. By moving steel capacity to be closer to ports, mills can benefit from savings in transporting raw materials, and when exporting steel products. As Chinese mills rely on imports of raw materials such as iron ore and coking coal, proximity to coast will offer better transportation services and will help in saving costs.
The consequence of the transition
While this strategy to shift steel mills will benefit them, the relocation will increase the economic burden on steel producers, especially private companies. Also, the environmental experts have questioned that whether moving them to the coast will improve the region’s air or the steel mills leaving Hebei and Jiangsu may simply shift the problem south. This is a key area of concern as environmental management and regulatory oversight in the south are weaker than in the north.
As per the industry experts, the huge costs involved in relocation might be offset by gaining economies of scale after steel mills upgrade their equipment. The mills can benefit from the move by taking the opportunity to upgrade facilities and replace a number of smaller plants with a single large one. On the other hand, the Ministry of Ecology and Environment (MEE) will strengthen oversight of local authorities to try to prevent pollution moving south, recently said Cui Shuhong, director of the MEE’s environmental impact assessment department.
By 2020, China’s top 10 steelmakers will account for 60% of national capacity, up from a third currently, while Hebei aims to cut its portion of nationwide steel output to 20% from nearly 30%.
Leave a Reply