10 Aug 2010 13:21

MIIT names China's outdated steel, nonferrous facilities

By Xu Hong

Shanghai. August 10. INTERFAX-CHINA - China's Ministry of Industry and Information Technology (MIIT) released a number of lists on its official Web site on Aug. 8 containing details about domestic steel and nonferrous metals facilities that have been classified as outdated and set to be phased out by the end of the year.

According to the announcement, 35.25 million tons of capacity is to be eliminated through the closure of blast furnaces, used in the production of pig iron, smaller than 380 cubic meters. A further 8.76 millions tons of capacity will also be eliminated by shutting down outdated converters, electric furnaces, electric arc furnaces (EAF), intermediate frequency furnaces and cupola furnaces, all of which are used to produce crude steel.

Around 25.87 millions tons of capacity will be eliminated from the coke sector, along with 17.19 million tons of ferroalloy production capacity.

Furthermore, some 371,010 tons of primary aluminum production capacity will be shut down, as will 144,900 tons of copper smelting capacity, 265,800 tons of lead smelting capacity and 293,700 tons of zinc smelting capacity.

Mysteel analyst Yu Liangui told Interfax that this demonstrates the determination of China's central government to regulate the domestic industry as this is the first time they have released the names of companies whose facilities will be subject to closure.

"The disclosure of company names will make the move more transparent and help to heighten public awareness," Yu said.

Yu also told Interfax that the government has scrapped preferential power tariffs and tightened regulations for credit and bank loans.

Yu feels that the elimination of these facilities will not have an impact on China's total steelmaking capacity. "The country is still undergoing development and demand is sure to grow," he said, adding, "Much more advanced facilities are being built, so China will maintain its large production capacity."

According to Yu, China's central government aims to eliminate blast furnaces smaller than 300 cubic meters and electric furnaces incapable of producing over 20 tons of crude steel per production cycle by the end of 2010. By the end of 2011, blast furnaces smaller than 400 cubic meters and electric furnaces incapable of producing over 30 tons of crude steel per production cycle will be eradicated.

The MIIT announced in May of this year that, by then end of 2010, it will have eliminated 30 million tons of pig iron capacity, 8.25 million tons of crude steel capacity, 339,000 tons of primary aluminum production capacity, 117,000 tons of copper smelting capacity, 113,000 tons of zinc smelting capacity and 243,000 tons of lead smelting capacity.

Umetal analyst Wang Lixin noted that the government's decision to reveal company names shows they are making a concerted effort to regulate the industry, but she told Interfax that the relatively small scale of facilities set for closure will have little impact

China's central government released guidelines at the beginning of 2009 stating its aim of eliminate around 800,000 tons of outdated primary aluminum smelting capacity, 300,000 tons of copper smelting capacity, and 400,000 tons of both lead and zinc smelting capacity within the next three years.

Director Duan Shaofu at the China Nonferrous Metals Association's (CNMIA) copper department said that there is currently very little outdated copper smelting capacity as much of it was eliminated during the global economic downturn.

Duan told Interfax that as the majority of the companies with outdated facilities are small-sized and have unstable production, refined copper output will also not feel any effect as a result of the closures.

China output around 1.86 million tons of refined copper in the first five months of 2010. Duan expects the total output for 2010 to reach over 4.5 million tons, an increase of 9.76 percent from last year.

Umetal's Wang added that the problem of overcapacity within the aluminum industry is serious. She feels that by concentrating on the copper industry, where overcapacity is not a large problem, the aluminum sector's problems are not being properly addressed.

Enterprises that do not shut down their outdated facilities by the end of September will face penalties, including the suspension of operating licenses, exclusion from investment projects, and the withdrawal of current or future financial support.