MAC/20: Mines and Communities

Cutting back dirty Chinese metals output may actually increase it: analyst

Published by MAC on 2009-10-13

Over the past few years the Chinese regime has vaunted its intention to close down outdated metals plant, thus reducing current market surplus of major ferrous and non-ferrous metals.

Underlying this policy has been the need, not only too "cool" the "overheated" economy, but also render Chinese towns, cities and rural areas, healthier and cleaner to live in.

But, according to a correspondent for Interfax China Metals and Mining (25 September 2009), proposed new regulations may actually have the opposite effect.

Smaller, dirtier, facilities could be expanded in order to appear "modernised. And local administrations would be beset by overwhelming social pressures to maintain (or increase) employment at the huge number of old, dangerous and damaging plants.

In fact, Chinese target figures for closures are themselves distinctly modest - hardly in keeping with the major "reforms" boasted by the regime.

For instance, only 800,000 million tonnes per year of aluminium output will be cut - less than a 20th of current capacity (20 million tonnes) and a 16th of annual production.

The present definition of "outdated" plants is determined mainly by their size and age.

Were it instead to reflect actual environmental performance (or lack of it) then, according to one analyst, the regime's underlying objectives might be fulfilled.

Just might...

Govt policy to eliminate outdated production facilities may buoy China's entire metals output

By Li Chunlan, Interfax China Metals & Mining

25 September 2009

The Chinese government's plan to eliminate outdated ferrous and nonferrous metals production facilities in order to reduce the country's production capacity surplus may instead have the opposite effect, industry insiders told Interfax on Sept. 23.

"Closing outdated facilities will cause unemployment and hinder local economic development, thus local governments may attempt to find another way to deal with the issue. It is likely that they will carry out technical upgrades in order to modernize facilities, which may well boost capacity," Jiang Yujing, a senior engineer from the Aluminum Corporation of China (Chinalco), told Interfax.

"The government has not drawn up a specific standard for defining outdated facilities in the nonferrous metals industry, particularly in regard to aluminum, which leaves loopholes open," an official from the China Nonferrous Metals Industry Association (CNMIA), who wished to remain anonymous, told Interfax.

The Chinese government plans to close 800,000 tons worth of outdated aluminum production facilities before the end of 2010, and in 2009, it intends to eliminate 300,000 tons of outdated copper production facilities, 600,000 tons of lead production facilities and 400,000 tons of zinc production facilities.

"Even the closure of 800,000 tons worth of outdated facilities will have little impact on China's massive aluminum production capacity," Jiang added.

According to Jiang, China's current aluminum production capacity stands at 20 million tons per annum, of which only 13 million tons are currently in operation.

An anonymous employee from a lead producer in Henan Province, which previously had a 30,000-ton outdated lead production facility, told Interfax that in order to abide by the government's request, it built a new 100,000-ton advanced lead production facility. It has now closed the old 30,000-ton facility and is operating the new 100,000-ton one.

China's steel industry has also encountered similar problems. "The Chinese government defines outdated steel production facilities by scale, which is likely to push small-sized steel mills to expand facilities in order to not be considered outdated, rather than shut down," Wei Zengming, an analyst from Mysteel Information, told Interfax.

The Chinese government said previously that it aims to eliminate 53.4 million tons worth of blast furnaces, which are less than 300 cubic meters in size, and 3.2 million tons worth of electrical furnaces and converters, capable of producing less than 20 tons per production cycle, before the end of 2010. Blast furnaces are used for making pig iron, and electrical furnaces and converters are used for making crude steel.

"Moreover, steel mills usually play a very important role in local economic development, thus local governments will not easily give them up and may even make false reports regarding total capacity and the capacity eliminated," Wei added.

Hebei Province's Tangshan City has the highest concentration of China's small-sized steel mills, the annual production capacity of which has increased from 90 million tons in 2006 to around 120 million tons at present, according to Wei.

China has been eliminating outdated steel production facilities since 2005, but its annual crude steel production capacity has grown from 420 million tons in 2005 to 660 million tons Wu Xichun an official from the China Iron and Steel Association, recently predicted that in 2010, China's annual crude steel production capacity may grow to 710 million tons.

"Currently, there is no effective way to close China's outdated steel production facilities. Tightening environmental standards may be one of the best ways to do so. Another way is to simply leave steel mills exposed to price fluctuations and competition," Wei added.

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