Tougher environmental law pressures China steel mills

[BEIJING] Chinese steel mills, already struggling with weakening demand, are facing higher costs and the risk of punishment as a result of tougher environmental legislation that came into effect this year, industry officials said on Wednesday.

Nearly three-quarters of China's steel enterprises do not meet environmental standards, and they are under heavy pressure to upgrade, according to estimates by the China Iron and Steel Association (CISA). Compliance costs have risen at least around 50 per cent, according to some estimates.

Shine Shen, general manager of the iron ore division of China's third biggest steel producer, the Shagang Group, said some of his company's facilities were not being used to avoid breaking the rules.

"We don't dare to use some of our equipment right now until it is renovated after the Chinese New Year," he told an industry conference.

Mr Shen said the cost of compliance now comes to around 160 yuan (US$26) per tonne of steel, putting further pressure on a sector already suffering from persistently low prices as a result of overcapacity and an economic slowdown.

CISA estimated last year that environmental compliance was costing Chinese steel mills around 55 yuan per tonne, with large state mills paying double that.

The steel sector, the world's biggest, has been a primary target of a campaign to clean up China's air, especially in the country's smoggiest province of Hebei, which surrounds the capital Beijing and is home to hundreds of private mills long accustomed to a light regulatory touch.

"Standards are tougher and punishments are tougher - the fines are imposed on a daily basis and even scarier is that violating environmental laws has become a criminal offence and bosses could go to jail," Li Xinchuang, CISA vice-secretary general, told the industry conference.

Large Chinese steelmakers saw profit margins of just 0.85 per cent last year, according to CISA data issued last week, the lowest of all industrial sectors.

Under the amended law passed last April and that went into effect on Jan 1, firms are subject to unlimited fines as well as custodial sentences if they fail to abide by state rules on technological standards, resource use and waste treatment.

The environment ministry also has new powers to shut down noncompliant projects, and is taking steps to ensure pollution from industrial plants is monitored properly.

There is an upside for some of the bigger state mills, which have complained that small and more poorly regulated rivals have been able to cut costs by flouting the rules.

"The main problem is that the enforcement of environmental standards is not even," Xu Lejiang, chairman of the Baoshan Iron and Steel Group, said in a speech last month.

REUTERS