Despite claims of cuts, China sees steel operating capacity increase in 2016, air quality to suffer – Greenpeace

*The below report was commissioned from the steel industry consultancy Custeel E-Commerce Co., Ltd. by Greenpeace East Asia. Since publication on Monday 13 February, Custeel have raised concerns that the definition of certain terms and elements of the data collection and calculation methods and content of the report contain inaccuracies. Greenpeace East Asia and Custeel are currently working together on these issues and will correct any existing errors after clarification from industry experts. Please consult with Greenpeace East Asia if any further questions. Our apologies for any inconvenience caused. Thank you for your understanding. (3 March 2017)*

Beijing, 13 February, 2017 – Analysis commissioned by Greenpeace East Asia shows that, despite having met and exceeded ambitious capacity cut targets for 2016, China’s steel industry last year saw a net increase in operating capacity equivalent to more than twice the UK’s total capacity. An average 74% of cut capacity was already idle, while previously idle plants were restarted and more than offset cuts in operating capacity. With steel the largest polluting sector in northern China’s pollution-hit provinces, the increase in operating capacity will pose a major obstacle to the government’s “war on air pollution”. [1]

“Impressive as they seem, China’s current steel capacity reduction targets won’t suffice to limit oversupply, as local governments maneuver to shield zombie steel mills and minimize the impact of the policies,” said Lauri Myllyvirta, Greenpeace global coal campaigner.

“Global markets are awash with steel and the people of northern China continue to choke on the industry’s major byproduct, smog. Increasing steel capacity makes neither economic nor environmental sense.”

In October last year China’s state planner, the National Development and Reform Council, celebrated the steel industry’s meeting capacity cut targets for 2016 ahead of schedule. [2] A new report, Research Report on Overcapacity Reduction in China’s Steel Industry, by Greenpeace East Asia and consultancy Custeel shows, however, that of the 85 million tonnes of steel capacity cut last year, a nationwide average of 73% was already idle — or non-operating — capacity. Only 23 million tonnes of cut capacity was operating.

2016 also saw 54 million tonnes of operating capacity restarted and an additional 12 million tonnes of new operating capacity come online.

The restarted and new capacity more than offset cuts in operating capacity, leaving the industry with a net increase in operating capacity of 36.5 million tonnes, twice as much as the UK’s total steel capacity, by end 2016.

The increase in operating capacity correlates with a 3% uptick in steel output in the second half of last year. [3]

The research was conducted by Custeel, a Chinese metallurgical industry consultancy and information platform commissioned by Greenpeace East Asia for the report. [4] To make the report possible, Custeel mapped changes in operating capacity in 2016 from government and company documents, and from industry surveys carried out by the consultancy.

The iron and steel industry is the biggest contributor to SO2 and particle emissions in the Beijing-Tianjin-Hebei (Jing-Jin-Ji) region, and the second biggest after coal-fired power nationwide.

Given the connection between the iron and steel industry and major pollutants in the Jing-Jin-Ji region, it is worrying that the area saw a 5% increase in steel operating capacity in 2016. Three fourths of all restarts occurred in Beijing’s neighbouring provinces, Shanxi, Hebei and Tianjin. Nearby Shandong performed somewhat better with a net reduction in capacity of approximately 1%.

“Capacity cut targets must be revised to ensure genuine reductions in operating capacity. Cutting already idle capacity is not enough to win the battle to tame the steel industry and the central government’s much-touted ‘war on air pollution’”, said Lauri Myllyvirta.

Greenpeace calls on the government to increase capacity reduction targets in order to make up for the effect of factory restarts and new capacity coming online. In addition, an investigation of local government measures to prop up zombie steel mills is urgently needed. The government should prioritise the elimination of capacity from highly polluting steel mills that violate environmental standards.