China's top steelmaking province of Hebei plans to slash its annual crude steel capacity by around a quarter, or 86 million tonnes, by 2020 as part of efforts to tackle air pollution, a government newspaper said on Monday.
The move, if successful, could ease overcapacity in China and boost steel prices in the world's biggest producer and consumer of the alloy. But it may dampen demand for steelmaking ingredients iron ore and coal.
China Environmental News, a paper published by the Ministry of Environmental Protection, said Hebei would aim to reduce total capacity by 60 million tonnes before 2017 and by another 26 million tonnes before 2020, according to policy documents.
New policies expected to be announced soon will impose higher emissions and technology standards on local steel mills and improve monitoring systems, the paper said. Firms that fail to comply with the higher standards will be forced to close.
Beijing was engulfed in hazardous smog in January this year, prompting a public outcry and a vow by the central government to tackle the sources of the problem.
Of the 10 Chinese cities with the worst air pollution, seven are in Hebei, and around a fifth of the pollution drifting over Beijing originates from the province, studies have shown.
Rapid growth in Hebei's steel sector has raised provincial coal consumption to around 300 million tonnes, up more than a third in just five years. China is now considering a plan to cut total coal consumption in the Beijing-Tianjin-Hebei region by a combined 100 million tonnes a year.
But with many small mills in the region operating without official approval, it remains unclear how much steel the province actually produces. Official data are believed to be unreliable but estimates range between 300-400 million tonnes.
The city of Tangshan, where much of Hebei's steel capacity is concentrated, launched a campaign in May this year to cut the power supplies to 199 highly polluting enterprises. However, local firms have been known to shut temporarily in order to evade checks.
According to figures produced by the Hebei metallurgical industry association, Hebei's total steel output in June stood at 15.54 million tonnes, down 10 percent from May.
Beijing and the provincial government have struggled to impose their will on Hebei's industries, with many power plants, steel mills and cement factories operating in violation of pollution guidelines.
According to a document issued earlier this month by the local environment bureau and seen by Reuters, many local steel mills have failed to meet environmental standards even following renovations, but they are continuing to operate.
Equipment is not being used properly, emissions data is being falsified and mills are also continuing to add capacity, the document said, adding that all steel firms will be forced to implement detailed overhaul plans by the end of the year.