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Steel mills in Hebei battle for survival
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STEELMAKERS in Hebei Province are struggling to survive industry reforms amid overcapacity and pollution concerns.
As demand keeps shrinking, the central government has decided to cut steel and iron production by 80 million tons by 2017.
The decision came as a heavy blow to local steelmakers, who are already struggling with expensive upgrades to reduce pollution.
Of the country’s 10 most polluted cities last year, seven were in Hebei, which produces at least one-fifth of the country’s total crude steel.
A slight yet nerve-wracking 0.6 percent drop in crude steel output last year — the first drop since 2000 — has left companies pessimistic about the future.
Backed by its rich iron ore reserves, Hebei’s annual steel output has surpassed that of Japan, the world’s second-largest steel-producing country.
Last year, crude steel output in Hebei was 185 million tons, 22 percent of China’s total 823 million tons.
Gone are the days when steel mills were compared to “banknote printers” as steelmaking was once more lucrative than any other trade, says Kong Delin, a steel plant manager.
His mill, once a cash cow in Qian’an, a county-level city in Hebei, has been closed for more than a year. Its former workshops are deserted and the 450-cubic-meter furnace that used to be a great source of pride for locals has been reduced to a pile of waste iron.
Kong, 40, has tears in his eyes as he recalls the company’s short-lived glory.
Jianyuan Steel and Iron Co Ltd was founded in 1992 amid soaring global demand. Kong joined the company in 2002, working his way up from a young engineer to deputy general manager.
“In our heyday, the market was so hungry for steel that billets were loaded onto container trucks immediately after they came out of the furnace,” he says. “People joked that steel company bosses carried huge sacks of cash to buy luxury cars, and if the sales assistant did not show due respect, they’d buy the showroom.”
By the time Kong joined Jianyuan, the company had helped Qian’an shake off poverty and become one of the 100 wealthiest counties in the country.
But it didn’t last long. Business began to slump in 2008 as the international financial crisis hit. By 2012 steel prices had dropped to levels seen in the 1990s.
Locals applied gallows humor to the degree to which profits generated by each ton of steel had dropped over the past decade.
“Ten years ago, it was equivalent to the price of a cell phone (about 3,000 yuan or US$480). After 2010, it was worth about the same as one kilogram of pork (about 30 yuan) and today, it is dirt cheap,” Kong says.
By 2013, Jianyuan was deep in the red, reporting monthly losses of at least 10 million yuan. Kong was in charge when the company was forced to close down and dismantle its furnace that year.
The central government has demanded national steel output be cut by 80 million tons by the end of 2017 to curb pollution. Hebei, as the largest producer, is expected to cut production by 60 million tons.
The reduction will shake many downstream industries and affect the livelihoods of at least 600,000 people.
In Shucun Township of Wu’an City, a leading steel base, the past two years have seen the closure of 237 lime kilns, about 70 percent of the city’s total.
Lime is a major material used in steelmaking, but lime kilns create considerable pollution.
Production cuts
Most of Shucun’s residents have earned a living from lime making. When kilns were bulldozed one after another, thousands of workers were left not knowing where to go to get work.
The government, too, paid a price. Last year, Hebei posted GDP growth of 6.5 percent, the third-lowest growth rate among the country’s provinces.
By the end of 2017, production cuts in the steel sector will have reduced provincial tax revenue by 50 billion yuan. In Tangshan alone, about 100,000 workers will likely be laid off due to production cuts.
Ye Jinbao, founder of the first private steel plant in Qian’an, has evaded the steel industry’s recession. He sold his plant in its heyday and is trying his luck in biomedicine.
“It’s still too early to tell if I’ve jumped from the frying pan into the fire,” says the man, whose 400-million-yuan investment in vaccine and drug development has yet to earn a profit.
His first vaccine product, developed in 2006 at a cost of 20 million yuan, is still awaiting clinical tests before it is approved for sale.
Though some plants have closed, most steel mills are trying to survive by upgrading products and seeking new revenue streams.
Jinan Steel in Wu’an City is teaming up with Fermat Machinery to produce digitally controlled machine tools. But the city government’s decision to move it and five other plants from downtown into a suburban industrial park by 2017 is a heavy financial burden.
Relocating a steel plant is expensive since 90 percent of the facilities can not be moved and need to be rebuilt from scratch.
“I hope we can survive with financial and policy support from the city government,” says Wei Kaozeng, a senior executive with Jinan Steel.
The industry’s gloomy outlook has forced companies and governments to seek more sustainable development.
“The city’s iron ore reserves may last another 50 years,” says Li Zhong, Party chief in Qian’an. “It’s crucial to find more rational ways of development without exhausting our resources.”
Powerful state companies are rapidly upgrading technologies to cut emissions.
The Tangshan plant of Hebei Steel and Iron Group, a 72-year-old state firm, has set up one of the largest sewage treatment facilities in northern China and stopped using groundwater in its steel production.
The plant has also applied new technologies to cut other waste emissions and reduce noise.
“Survival calls for transformation and involves great pain,” says Zhou Benshun, secretary of the Hebei Provincial Party Committee. “But there’s no turning back and we have to forge ahead.”
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