• Hebei Steel Factory

Hebei Steel Factory (Photo : Getty Images)

Hebei's economic planner has announced approval of the 42.4-billion yuan ($8 billion) project proposed by China's biggest steelmaker, Hebei Steel Group, which aims to reduce its steel overcapacity by nearly 2 million tons and upgrade old technology.

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A report by the Financial Review said that the move was part of China's effort to carry out reform on the supply-side, especially in its steel and coal sectors, and reduce pollution as well as cut down on China's steel capacity that affected both local and global prices.

Metal Bulletin reported on March 21, that the prices of seaborne iron ore and steel dropped, falling short of the expected rise at the start of the consumption season. The spot price of iron dropped 4.3 percent to $87.59 per ton. At the Dalian Commodity Exchange, trading of iron ore futures fell 2.3 percent to 602 yuan.

The payments for high-grade fines also weakened, as mills shifted to domestic concentrates and low-grade fine for economic reasons, the report said. The mills' consumption for high-grade fines rose as the supply of coke increased, it added.

According to the document published on March 19, Hebei's Development and Reform Commission (DRC) approved the project for four units of the Hebei Steel Group.

The document showed that the four entities included two units of listed subsidiary Hesteel Co Ltd and Xuansteel Co, which pledged to phase out 9.15 million tons of iron capacity and 9.34 million tons of steel capacity.

"To cut excess capacity, upgrade technology and clean up the air for the coming Winter Olympic Games, Hebei Steel Group has planned to upgrade and relocate Xuansteel," Wei, a DRC official who declined to give his full name, told Reuters.

"Xuansteel will build new modernized plants in Laoting. After the new facilities pass assessments, a number of outdated steel mills of Hebei Steel Group will be halted," Wei added.

Xuansteel's plan includes the building of four new blast furnaces and five new converters with total iron and steel capacity of 7.32 million tons and 7.47 million tons, respectively.

With the outdated steel mills phased out, Hebei Steel's annual iron capacity is expected to be reduced by 1.8 million tons, while its steel capacity will be cut down by about 1.9 million tons.

Hebei has 104 mills, which account for nearly a quarter of the country's total steel output. The province has pledged to reduce its steel and iron making capacity by about 31.17 million tons by 2017 and by 49.13 million tons by 2020.

As part of its war on pollution and industrial overcapacity, China has launched a campaign to shut down substandard steel output. It is planning to close 100-150 million tons of annual steel production capacity from 2016 to 2020.