Plant shutdowns likely as emission standards kick in

The introduction of new industrial emission standards in China is likely to mean the shutdown of some iron and steel plants this year.

Yuan Yuzhu, chairman of Shanxi Zhongyang Iron and Steel Co Ltd, told China Daily that the new environmental standards, combined with mounting pressures on the industry from overcapacity, could mean a difficult year for the sector.

"The Ministry of Environmental Protection will introduce new emission standards from April, which will present a big challenge to struggling steel enterprises.

"And a lot of enterprises will be shut down as a result," said Yuan.

"These are not mergers or acquisitions - this is a move to meet emission standards, which will ultimately help generate profits, and it is needed by the market.

"This shift in the industry will take about two or three years to complete," said Yuan, an NPC deputy.

The Ministry of Environmental Protection said on March 6 that it plans to impose pollutant emission caps on six major industries, and coal-fired furnace projects in 47 major cities.

The six industries are coal-fired power generation, iron and steel, cement, non-ferrous metals, petrochemicals and chemicals.

Existing coal-fired power plants and steel mills that exceed the new emission caps will be ordered to restructure, the ministry said, and those that still fall short of the standards after restructuring will face production limits or closures.

The iron and steel industry has experienced rapid development over the past two decades, but is now challenged by overcapacity, expensive iron ore imports and environmental protection pressure.

China has also been encouraging industry consolidation of iron and steel enterprises, which are major taxpayers to local governments.

National crude steel output reached 716 million tons in 2012, about 46 percent of the world's total, and total production capacity was more than 900 million tons.

But industry profits declined 98 percent year-on-year to 1.58 billion yuan in 2012, or 2.1 yuan (53 US cents) each ton of steel, almost the cost of bottled water, Yuan said.

He added the iron and steel sector is expected to see slight growth this year after the 2012 slowdown.

"But we are now in a dilemma. Production leads to loss, while the banks keep pressing on debt repayments."

He said banks must shoulder part of the ongoing losses in the iron and steel industry, given around 80 percent of the capital being used is from the banks.

He also urged the government to negotiate with iron suppliers such as BHP Billiton plc, Rio Tinto Group and Vale SA, which control China's iron ore import prices.

Li Xiaobo, the chairman of Taiyuan Iron & Steel (Group) Co Ltd in Shanxi province, added that China's iron and steel industry paid tens of billions of yuan in interest to banks.

Li, also an NPC deputy, said: "In addition to asking the government for structural tax reductions, innovation is the right way to resolve the overcapacity.

"But more efforts should be made to set up mechanisms to allow more innovation including patent and intellectual property rights protection, venture capital use and support to small and medium-sized enterprises."

Li said his company will increase overseas investment to break the iron ore monopoly of the transnational giants.

Sun Ruisheng contributed to this story.

lijiabao@chinadaily.com.cn