China Pollution Crackdown Exposes Rule Breakers in Top Steel Hub

China’s top environmental official vowed to reinforce pollution curbs after inspections found some steel mills were violating output restrictions and faking documents.

A team led by Huang Runqiu, the minister of ecology and environment, on Thursday found four mills in the steelmaking hub of Tangshan weren’t complying with production cuts put in place to reduce heavy pollution.

The inspections underscore China’s push to make one of the dirtiest corners in the economy greener, as well as the challenges it faces in achieving net zero emissions by 2060. Premier Li Keqiang said this month the country will act strongly on climate change, though its most recent plans were seen as underwhelming. For steel, the government has already pledged to rein in capacity this year and focus on reducing emissions.

“The government has reiterated its goal to reduce steel production from last year’s record high, so it is believed there will be follow-up actions,” said Yu Chen, an analyst with Mysteel. “Tangshan is one of the most polluted cities, so the implementation of steel cuts will be especially strict and will be set as a trial for other cities.”

China Pollution Crackdown Exposes Rule Breakers in Top Steel Hub

Some mills in Tangshan faked production records and the people responsible will be subject to legal penalty, according to a statement from the Ministry of Ecology and Environment. Production irregularities were found at a unit of HBIS Group, as well as Tangshan Jinma Steel Group, Tangshan Chunxing Special Steel Co. and Tangshan Donghua Iron and Steel Enterprise Group.

Calls to the companies seeking comment on the announcement weren’t answered.

Morgan Stanley said this week that production cuts in Tangshan have the potential to return the global iron ore market to surplus. If there’s sufficient supply, more steel is likely to be produced using scrap -- a less polluting method -- which would further weaken demand for iron ore and put downward pressure on benchmark prices for 62% ore, it said. At the same time, premiums for pellets, lump and high-grade ore would remain elevated.

China Pollution Crackdown Exposes Rule Breakers in Top Steel Hub

Meanwhile, stockpiles at Chinese ports expanded to the highest since May 2019, pointing to a potential slowdown in consumption in the world’s biggest steel industry.

Iron ore in Singapore dropped as much as 4.9% before trading 2.9% lower at $160 a ton by 4:03 p.m. local time. Futures in Dalian fell 3.2% and slumped more than 6% this week after Tangshan restrictions battered the market on Tuesday.

Hot-rolled coil futures in Shanghai rose 1.4%, while rebar gained 0.9%.

©2021 Bloomberg L.P.

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