Tangshan mill closure reflects wider problems in Chinese steel industry
September 4, 2014 Category Automotive Metals & Minerals, Metals
The Xinming Steel Pipe plant in Tangshan, a polluted industrial city that produces more steel a year than the entire United States, shut down in July, leaving more than 400 workers and a host of creditors unpaid. If discussions with creditors fail, bankruptcy proceedings could be launched. The turmoil at the firm shows how huge overcapacity is pushing scores of similar steel enterprises to the brink of bankruptcy. Unlike in the past, however, provincial governments are now unwilling or unable to bail them out. China’s steel industry with huge debts and at least 200 million tons of excess production capacity – far more than either the U.S. output of 87 million tons or the European Union’s 166 million tons. China is estimated to have a steel production capacity of more than 1 billion tons. Tangshan, 170 km east of Beijing, produces 100 million tons of mostly low-end steel used in construction every year and has been at the center of a campaign aimed at closing obsolete and polluting steel works. Hebei Governor Zhang Qingwei said in March that at least 16 mills had shut in the province because they had been unable to pay their bills. The steel industry is also in trouble in other provinces. Xilin Iron and Steel in Heilongjiang province and Highsee Steel in Shanxi province are also struggling with heavy debt, the South China Morning Post reports.
Baosteel, China’s leading steelmaker, has estimated national crude steel output last year at 822 million tons, nearly 6% above official data, suggesting the country’s supply glut is worse than previously estimated. The figure given in a speech by Xu Lejiang, Chairman of Baosteel’s parent, would take the annual growth rate for steel output last year from 7.5% to more than 13%. The government has stepped up efforts to crack down on the bloated sector, restricting new capacity growth and forcing outdated and polluting capacity to close, but new plants have continued to go into operation. Xu said China’s official steel capacity levels reached 1.106 billion tons last year, putting utilisation rates at 74.3%. Total capacity has now risen to 1.14 billion tons. The 88 members of the China Iron and Steel Association (CISA) had a total capacity of 842.93 million tons last year, and produced 663.8 million tons of crude steel. Smaller, non-member firms had a total capacity of 263.29 million tons and produced 158.17 million tons, putting their average utilisation rate at just 60%. Xu said Chinese steel mills would continue to struggle in the second half of the year amid financing difficulties, rising environmental compliance costs and higher tax rates.
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