Chinese officials have shut down steel mills after production facilities failed to adhere to environmental standards set in place by the government to fight air pollution.
Premier Li Keqiang said on Thursday, March 5, at the National People's Congress' opening session that the Chinese government is doing everything it can to fight pollution, a problem that has left many in discontent. There are no official figures yet on how much the shutdown has affected production, but Dalian iron futures slumped 4 percent as fears of crackdowns spread to other mills.
Ministry of Environmental Protection inspectors summoned mayors from Chengde and Linyi last week, urging them to uphold environmental laws and crack down on violators. The steel sector in China is at the center of the government's fight against pollution, but steel mills can still operate once they meet stricter standards imposed. The problem is that doing so would raise costs for production at a time when demands are low.
According to a mill official from Linyi Yuansheng Casting Co. Ltd., nearly all steel-making facilities in Linyi have closed and no date has been released as to when they will reopen and resume production. An official from Linyi Jiangxin Steel Co Ltd. also confirmed their mill closing but did not elaborate as well on the future of their production.
Analysts say Linyi's steel capacity represents around 7 tons. Yearly steel capacity for China totals around 907 tons. Cheng Xubao, Custeel analyst, said the country's battle versus pollution will drive up costs for producing steel, forcing uncompetitive mills to shut down on their own.
Overcapacity has already brought down steel prices in China, troubling mills even before environmental laws started targeting them. Adding the effects of an economic slowdown, steel mills now have to pay about $26 for a ton of steel to meet environmental guidelines.
The Chinese government started dealing with dangerous smog by implementing a new environmental law and strengthening monitoring. This has led to some steel mills permanently closing last year.
China entered an agreement with the United States in 2014 to reduce carbon emissions. The two countries together account for more than a third of all greenhouse gas emissions in the world and have cooperated to address climate change by increasing use of clean energy by up to 20 percent by 2030 and reducing emissions up to 28 percent below 2005 levels by 2025, respectively.
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