BEIJING Chinas revised emission caps for iron ore and steelmaking projects likely will result in further consolidationand closuresof small steelmaking facilities, analysts told AMM sister publication Steel First.
The new standards, which also apply to five other heavily polluting industries, came into effect March 1 for new projects in 47 cities nationwide, according to the Ministry of Environmental Protection. Existing plants will be subject to restrictions beginning Jan. 1, 2015, with a special focus on sintered iron and steel and pelletizing plants.
While the finer details of the caps have yet to be made public, industry analysts agree that they are part of a wider effort to tackle chronic overcapacity in Chinas steel industry. It is estimated that China has at least 900 million tonnes of crude steel production capacity, well above 2012 output of 716 million tonnes.
"These emission caps are a further indication that the central government will step up efforts to crack down on illegal projects and capacity," Frank Tang, an analyst at investment bank North Square Blue Oak Ltd., said.
Chinas National Development and Reform Commission officially suspended new steel project approvals in 2009, although Baosteel Group Corp. and Wuhan Iron & Steel (Group) Corp. managed to secure clearance for two new projects last year.
Local governments also widely ignored the ruling and continued issuing new project approvals, particularly on the back of the governments massive post-financial-crisis stimulus package. The locally approved projects, which have resulted in more than 350 million tonnes of new, illegal steel capacity coming online, are now far less likely to survive.
The new caps also are likely to apply to steelmakers that relocate their operations away from urban areas before 2015, Tang said, citing the widely publicized decision by Baosteel to move some 12 million tonnes of steelmaking capacity out of Shanghai.
Chinas large state-owned steelmakers claim to have already installed the equipment necessary to reduce emissions, including coke-dry quenching technology to reduce carbon dioxide as well as dust extractors and desulfurization processes.
However, there is some debate over whether they actually operate the emission controls, particularly when so many are struggling to turn a profit.
The countrys 80 largest steelmakers reported that combined after-tax earnings fell more than 98 percent last year to just 1.58 billion yuan ($254 million), although most of those companies are state-owned companies that are deemed to be less competitive than their private counterparts.
A version of this article was first published by AMM sister publication Steel First.