Cleaner, but not leaner: China steel mills defy capacity cutbacks

Sat Oct 22, 2016 6:02pm EDT
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By Ruby Lian and Manolo Serapio Jr

SHANGHAI/SINGAPORE (Reuters) - Chinese steel mills are becoming cleaner every month as Beijing pushes to curb its smoke-stack industries. But they're not getting any leaner.

Despite efforts to step up environmental checks and trim out excess capacity, steel output by the world's top producer has risen year-on-year for the past seven months.

As emissions cuts will mean steel mills are better able to meet stricter government standards, Beijing may find it more difficult to cut overcapacity in a sprawling industry.

For now, domestic demand from infrastructure and construction has been robust, absorbing most of the extra supply. But a steeper slowdown in the world's second-largest economy could force mills to ramp up sales abroad.

That could rekindle tensions with Europe and the United States, major trading partners which have for years accused China of dumping its excess steel overseas, hitting producers and hurting global prices.

The issue took center stage at a recent G20 summit in China when world leaders pledged to work to address excess output.

China's top steel producing city of Tangshan in Hebei province illustrates Beijing's dilemma. Hosting a months-long international horticultural show, Tangshan had a major six-month clean-up to ensure blue skies for visiting dignitaries, including the country's president Xi Jinping.

Industry experts predicted this would see a big drop in output in a province that accounts for a fifth of national production, going some way to realizing government goals on output and capacity cuts.   Continued...

China's total steel output for the first nine months edged up 0.4 percent, though Beijing has stepped up efforts in environmental checks and slashed capacities, the latest sign that steps to cut emissions and comply with stricter government standards are undermining Beijing's efforts to cut overcapacity in its massive, unwieldy steel industry.  (Ruby Lian and Manolo Serapio) People visit a horticulture show in Tangshan, Hebei Province, China, May 1, 2016. REUTERS/Stringer