March 6, 2018 / 12:38 PM / 2 years ago

Steel output cuts the 'new normal' in smog-prone China -exec

* Production cuts to become common practice in smog war -exec

* Current balance in steel market could prove temporary

BEIJING, March 6 (Reuters) - Sudden output cuts in China’s huge steel sector are likely to become the “new normal” as the country continues to wage its war on pollution by taking on heavy industry, a veteran industry official said on the sidelines of China’s parliament on Tuesday.

Zhang Wuzong, chairman of privately owned Shandong Shiheng Special Steel and a parliamentary delegate, saw production at his plant drop by a fifth over the winter months as a result of a six-month campaign to meet targets on air quality.

Shiheng was compelled to cut output for 58 days over the winter, amounting to 160,000 tonnes of steel, Zhang said, estimating that the company lost 160 million yuan ($25.25 million) in earnings.

From October last year China forced 28 northern cities to make drastic industrial output cuts, restricted traffic and curbed coal consumption during the winter heating season.

Some cities were forced to cut steel output by half in an effort to cut concentrations of hazardous microscopic particles in the atmosphere by 10-25 percent from the previous year.

The campaign finally ends in the middle of this month, but the major steel-producing city of Tangshan has already drawn up a draft plan to extend output restrictions until November.

“It looks like production restrictions are going to be the new normal,” Zhang said.

“Pollution remains a big problem in the Beijing-Tianjin-Hebei region in other seasons apart from winter, so the new idea is that production will be cut whenever there is pollution.”

Environmental officials have said that smog-hit cities in China’s heavy industrial north are now being encouraged to draw up their own air-quality targets and pollution action plans.

“To solve their pollution problems, these cities will proactively decide their own measures according to their own requirements,” Zhang said.

“The environmental protection storm will not stop, and that’s how it should be.”

Traders are speculating that steel mills in Shandong and Hebei provinces will also be restricted in the weeks leading up to the Shanghai Cooperation Organisation summit due to be held in the coastal city of Qingdao in June, but Zhang said the government had yet to make an announcement.

Though China’s anti-smog efforts have raised production costs, they have also led to the closure of a huge amount of substandard capacity, brought supply and demand into balance and supported prices, Zhang said.

Though annual profit at Zhang’s company tripled last year, he warned that supply-demand equilibrium could be short-lived.

“Chinese steel demand is also temporary and it cannot remain so high in the future,” he said. ($1 = 6.3365 yuan) (Reporting by David Stanway Additional reporting by Ruby Lian in SHANGHAI Editing by David Goodman)

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