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The province – China’s steel production hub – has cut 1.3 million tonnes of iron making capacity, 1.1 million tonnes of steelmaking capacity and 3.6 million tonnes of coke capacity as at October 31, according to the announcement.
Not only were the capacity cuts completed two months ahead of their deadline, they also exceeded Beijing’s requirements, the provincial government said.
Beijing had ordered Hebei province to cut 800,000 tonnes of iron making capacity, 200,000 tonnes of steelmaking capacity and 400,000 tonnes of coke capacity by the end of this year.
The provincial government announced in September that 60 million tonnes of steel capacity will be cut by the end of 2017 to control air pollution in the region.
But the steel market has yet to see a significant drop in output. The country’s daily crude steel output stood at 2.1068 tpd in mid-October, according to estimates released by China Iron & Steel Assn.
“We had been cynical when the government first started talking about putting pressure on the steel industry to reduce emissions but, for Hebei at least, the effects have been real,” Macquarie Research said in a report based on a tour to Hebei.
With production restricted and mills making meaningful adjustments to their raw material blends, premiums for higher quality raw materials are being driven up, it said.
“Mills were being encouraged to install desulphurisation equipment or risk being forced to shut down. Indeed, shutdowns were already occurring with the particular pressure on the use of sinter plants. The larger mills we spoke to said they already had such equipment in place but that smaller mills generally did not and were forced to reduce output as a result,” Macquarie said.
More production cuts are likely to happen in early November.
“We may see some temporary production cuts possibly ordered by the government before and during the third plenary session [of the Communist Party of China’s central committee] in November,” a Beijing-based analyst said.
The problem will be an even bigger highlight if there is smog during the session, he added.