Stricter environmental law means higher costs for China’s steelmakers

Chinese steelmakers expressed mixed feelings after the government in Beijing passed amendments to its environmental protection law that will mean tougher punishments for polluters.

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Revisions to the law include the option that polluting facilities could be closed down and confiscated, and that company executives could be detained for as long as 15 days, according to a press release published by China’s National People’s Congress (NPC).

Penalties for companies that continue to pollute after receiving orders to cease will be calculated daily. Fines under the former regime had been assessed once only.

The revisions were approved by the NPC on Thursday April 24, and the new law will take effect from January 1, 2015.

It was the first change to the legislation in 25 years.

“I think that [the new environmental law] will greatly affect the steel industry, as it is one of the most serious polluters in the country,” a trader in Singapore said.

“It is an additional cost for steelmakers, either small or big. All steel mills will suffer because of that, now that profitability has already been squeezed hard,” he added.

Member mills of the China Iron & Steel Assn (Cisa) managed to turn from loss to profit in March, but still recorded a combined loss of 2.33 billion yuan ($377 million) for the first quarter of 2014, according to a Cisa statement on April 25.

The revisions fell within market expectations as the government has made it an urgent task to limit pollution, such as hazardous smog.

“As the new law has been passed, it will take a very short time for it to be executed, because people’s tolerance for smog is getting weaker,” a steel mill source in Beijing said.

“The effect is more on the small and private mills that don’t meet environmental protection standards, rather than state-owned steel mills such as Hebei Steel, because the new law puts all steelmakers on an equal footing,” the steel mill source said.

Previously, some smaller and private mills could take advantage of lower environmental costs.

The immediate effect on steelmakers of the new legal regime could be limited, the source in Beijing said.

“Those who are not meeting standards have already scaled back production. Any confiscation of their idled facilities won’t do much harm to their operations. And those who are meeting standards gain no advantage either, because the country’s steel production won’t come down in the short term,” he explained.

It is still too early to say how much of an effect the new law will have on the steel industry. It depends on how resolute the government is in pushing ahead with pollution controls, another steel mill source in Hebei said.

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