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Whether it’s capacity cuts, pollution controls, government closures, economic troubles or tariffs on exports, nothing seems to stop China’s mills from producing more steel.

Despite a three-year campaign to slash excess production capacity and government curbs to fight smog, the country’s steelmakers have continued to set monthly records for output.

In July, China’s crude steel production rose 7.2 percent from a year earlier to 81.24 million metric tons, making it the third month in a row over the 80-million ton mark, according to the National Bureau of Statistics (NBS).

So far this year, production is running 6.3 percent ahead of the 2017 record rate, a pace that would put output on track to top 884 million tons in 2018.

Last week, Reuters reported signs that the boom may have leveled off in August as a purchasing managers’ index (PMI) for steel edged down to 53.4 from 54.8 in July, although it stayed well above the expansion-contraction tipping point of 50.

The steel indicator was significantly higher than the official PMI reading for all manufacturing, which ticked up to 51.3 from 51.2 a month before.

Last year, China accounted for 49.2 percent of global steel manufacturing, the World Steel Association said. In figures compiled through May, China’s share of the reported world total reached 50.7 percent.

At the 2017 rate, China made more steel in a month than the United States made in a year.

Chinese steelmakers’ records this year have been all the more remarkable in light of the forces lined up against them.

Most notably, the industry has been pressured to shut down old production lines since January 2016, when Premier Li Keqiang promised to shed 100 million to 150 million tons of surplus capacity by 2020. The excess was blamed for low prices, losses and overproduction.

Since then, the government has claimed closures of 65 million tons of annual capacity in 2016 and 50 million tons last year with a target of 30 million tons in 2018.

The NBS cited China’s production capacity in 2016 as 1.1269 billion tons, the Peterson Institute for International Economics reported. The figures suggest overcapacity could be down to 163 million tons by the end of this year if production continues at the current rate.

Seasonal suspensions

Aside from the targets for permanent downsizing, the government has imposed seasonal suspensions to keep coal-fired steel plants from adding to winter smog in the Beijing area during the heating season.

Judging by the series of monthly records, the seasonal curbs of up to 50 percent of normal production did nothing to slow industry output as activity shifted to other parts of the country, even though some cutbacks were extended into the spring.

“The reason we didn’t see declines in steel output amid the environmental crackdown is that steel mills have improved their production efficiency by using higher grades of iron ore and adding more scrap steel to churn out more products,” analyst Wang Yilin at Sinosteel Futures told Reuters.

Another reason for increases is that steelmakers rushed to take advantage of rising prices after the market reacted to the capacity cuts, the seasonal suspensions and fears of a wider environmental crackdown.

In late July, the China Iron and Steel Association (CISA) reported a 14.6-percent price rise in the first half from a year earlier. Sales soared more than 15 percent to nearly 2 trillion yuan (U.S. $292 billion), while net profit more than doubled to 139.3 billion yuan (U.S. $20.3 billion), the official English-language China Daily said.

But there are signs that the steel mills’ good fortune may be a headache for the government.

At an Aug. 16 briefing, an official of the National Development and Reform Commission (NDRC) said that meeting this year’s capacity reduction target will be “not an easy task” if profit margins remain at near-record highs.

In the first seven months, 24.7 million tons of capacity, or 82 percent of the 2018 target, was shut down. But the industry is under “significant pressure” to restart outdated production to reap more profits, the official at China’s top planning agency said, according to a separate Reuters report.

The restarting threat is an echo of problems reported over the past two years when many mills counted as closed quickly reopened after prices started to rise.

In 2017, a study commissioned by Greenpeace East Asia found that 73 percent of the claimed capacity cuts took place at plants that were already idled and that 54 million tons of capacity had restarted to take advantage of price hikes.

The government’s accounting of closures and annual targets has yet to be audited for double-counting, which could explain the recent production records despite the reported cuts.

The government has acknowledged persistent illegal production in spite of repeated attempts to contain it.

In June, NDRC spokeswoman Meng Wei said the capacity campaign had produced effective results, speaking after eight inspection teams completed a survey of 21 provinces and regions for production of substandard steel bars.

Meng said that “some weak links remain in certain regions, including the illegal use of production facilities and illegal addition of new capacity,” the official Xinhua news agency reported.

On Aug. 21, the government released an interagency set of rules for regulating the steel industry and “prohibiting any support for illegal capacity in the sector,” China Daily said.

Doubts about production levels

Some analyses have raised doubts about whether China’s actual production levels will ever be known.

“China has closed about 150 million tonnes of steel production capacity over the past couple of years, but much of this was ‘illegal’ capacity built and operating without the correct permits, meaning that none of this output was in the statistics bureau’s historical count,” said a Reuters commentary on July 17.

“We may never know how much steel China produced before the capacity closures. Even the Chinese authorities may never know,” it said.

The uncertainties about shutdowns extend beyond the historical data.

“As with all such edicts in China, there will be slippage as steel producers, often with the approval of regional authorities, resist pressure to close or curtail production,” the commentary said.

But government regulators face a more fundamental problem.

China’s steelmakers appear to be overproducing whether prices are high or whether prices are low.

In the downtimes of 2016, steel plants overproduced to drive their competitors out of business, hoping to cover their losses with loans and side-bets on risky investments.

With price recovery, mills have boosted production to maximize profits, make up for past losses, and pay down their debts.

Their responses to price signals seem to defy market forces of supply and demand.

Steel production has been rising to new records while economic growth has been slowing.

Growth of gross domestic product in the second quarter edged down to 6.7 percent in the second quarter from 6.8 percent in the first, even before the effects of tariffs take hold.

In July, growth of industrial output slipped to 6 percent, bringing down the seven-month rate to 6.6 percent.

Investment in fixed assets has been steadily fading, with seven-month growth declining to 5.5 percent from 8.3 percent a year before.

Falling exports

Steelmakers appear to be oblivious, although some may have increased production in anticipation of a U.S. tariff slowdown starting in July.

While Washington has imposed 25-percent tariffs, the production records may be more of a problem for China than the United States.

Although China’s steel production dwarfs those of other countries, its exports have been dropping this year, thanks in part to higher prices.

In the first seven months, China’s steel exports fell 14 percent from a year earlier to 41.31 million tons, according to S&P Global Platts news service. The export volume was 7.7 percent of China’s production, based on the NBS data for crude steel.

Very little of China’s exports have been reaching the United States.

In the first five months, U.S. imports of steel products from China fell 2.2 percent from a year before to just 303,701 tons, although the value rose 8.2 percent, the Census Bureau said.

All this suggests that the distortion of price signals and production capacity may be more of factor for foreign markets than how much steel is actually getting through.

“The key issue is overcapacity, not production levels,” said Scott Kennedy, deputy director of China studies at the Center for Strategic and International Studies in Washington.

“If production is rising because of substantial increases in domestic demand and is not being foisted on global markets, then that is not objectionable,” Kennedy said.

But he added that “none of this addresses an underlying problem, which is that many Chinese steel firms are state-owned enterprises with access to cheap credit.”

“So, even if overcapacity has been tamed for now, once China’s economy slows and steel demand falls off, if past is prologue, state banks will again rescue steel firms and their excess output will again unfairly depress prices,” Kennedy said.

Pennsylvania’s oldest working steel mill could soon have a new type of industrial activity on-site: fracking.

US Steel has signed a lease with New Mexico-based Merrion Oil and Gas, to develop a Marcellus shale gas well on the grounds of the Edgar Thomson works, originally built in 1875 by Andrew Carnegie.

The well site will be on the eastern edge of the property, in North Versailles Township, according to a drilling permit application Merrion submitted to the Pennsylvania Department of Environmental Protection (DEP).

An agreement signed by US Steel and Union Railroad allows drilling “within 200 feet of a building” at the site.

Ryan Davis, operations manager at Merrion Oil and Gas, a Farmington, N.M.-based company, said this would be the first well the company drilled in Pennsylvania.

“We think the rock quality there is going to be good,” Davis said.

The company plans to drill six horizontal wells at the site into the Marcellus, but could also use the well pad to drill and frack into other rock formations, like the Utica shale, Davis said.

The Edgar Thomson works is part of a complex of US Steel mills along the Monongahela River that includes its Clairton Coke Works.

US Steel spokeswoman Meghan Cox said in an email Merrion was in the “beginning stages” of the process to obtain its permits to drill a gas well on a 10-acre parcel the company has leased from US Steel.

“We view this project as a potential opportunity to enhance the long-term cost competitiveness of our local Mon Valley works facilities, including Edgar Thomson plant,” Cox said.

Merrion’s Davis says the industrial nature of the steel mill means noise and traffic created by oil and gas operations won’t be so noticeable.

“The industrial area makes this unique. It allows us to kind of blend in with the current activity that’s there,” Davis said.

Local opposition sprouted over a plan to drill and frack at the nearby Grand View Golf Club in North Braddock in 2014. The plan never came to fruition.

Davis said the company will hold town-hall style meetings to placate any opposition to the company’s plans.

“Most of the time people are antsy or scared of the oil and gas development because they don’t understand the process,” Davis says. “And so as we get a little further down the road we’ll be holding some community outreach events to try to educate the public and allow them to ask questions so we can answer them–give them an inside view in how we’re doing it.”

But some residents who live near the plant say they’re worried about pollution from the gas well and from increased diesel truck traffic to service it.

Hannah Reiff, is with a local group called North Braddock Residents for our Future, which opposes the well.

“Our community and all the surrounding communities are subjected to very high levels of pollution,” Reiff said. “People still live here and they’re pretty close to that site and they shouldn’t be subjected to any of the environmental risks that come along with unconventional gas wells.”

The company does not need an air quality permit from the Allegheny County Health Department, as long as the company stays “within certain emission restrictions and comply with regular testing and repair as evaluated by DEP,” said agency spokesman Ryan Scarpino, in an email. “Currently, none of the wells in Allegheny County have required permits.”

In November, the health department and EPA cited the plant for “multiple violations” of county and federal air quality rules, including “excessive visible emissions, failure to maintain equipment and failure to certify compliance” with a federal air permit.

Though North Versailles is classified an environmental justice area by the DEP, oil and gas wells aren’t subject to the extra public participation elements that go along with the designation.

Pennsylvania defines “environmental justice areas” as census tracts with at least 30 percent minority population and/or 20 percent of the population under the federal poverty line, with the idea that these communities frequently shoulder a disproportionate amount of the cost of industrial development.

Once a community is designated, people there get more notice and opportunities to comment on industrial developments that could impact them.

The DEP held a meeting with Merrion officials Nov. 2, said agency spokeswoman Lauren Fraley, in an email. The department expects a second meeting with the company “in the near future,” Fraley said, specifically for an erosion and sedimentation control permit.

StateImpact Pennsylvania is a collaboration between WESA, Allegheny Front, WITF, and WHYY to cover the commonwealth’s energy economy. Read more stories at StateImpact Pennsylvania’s website.

Tata Steel Ltd. has sounded out banks about raising the equivalent of $5.1 billion through loan facilities and a bond issue to help refinance debt, according to people familiar with the matter.

The Indian steelmaker plans a $2.15 billion six-year syndicated facility to refinance loans in the books of units, TS Global Holdings Pte. and NatSteel Asia Pte., said the people, who are not authorized to speak publicly and asked not to be identified. Tata Steel’s spokesman declined to comment on the planned financing.

The new borrowing will mark Tata Steel’s return to the international loan markets for the first time since the middle of 2016 as it sharpens its focus on the Indian market after selling unprofitable assets in the U.K. The company said last week it plans to raise as much as 128 billion rupees ($2 billion) in a rights offer to add capacity in India as well as to repay debt.

A separate 2.5 billion-euro borrowing is planned to refinance debt remaining after the transfer of Tata Steel Europe Ltd.’s existing obligations into its proposed joint venturewith Germany’s Thyssenkrupp AG. The new fundraising will be backed by a letter of comfort from Tata Steel.

U.S. Steel

U.S. Steel failed to test a Lake Michigan tributary for highly toxic hexavalent chromium after blue liquid “with visible solids” poured out of one of the company’s northwest Indiana plants in late October, according to documents posted online Tuesday by state regulators.

The incident marked the second time this year that the company’s Midwest Plant spilled chromium into Burns Waterway, a man-made slip that flows into the lake near a sprawling complex of steel mills dividing the Indiana Dunes National Lakeshore.

An inspector from the Indiana Department of Environmental Management visited the plant Nov. 16, a day after the Tribune first reported on the latest spill. Plant managers told the inspector they had opted not to test for the most dangerous form of the metal, even though the earlier spill in April had released up to 920 pounds of hexavalent chromium into the water.

In a report on the visit, the state inspector was about as incredulous as a bureaucrat can get, pointing out that “Visual evidence of operational deficiencies, such as discolored effluent or solids leaving the facility … should lead the facility to monitor for hexavalent chromium to determine the extent of the impact, even if the on-site personnel believe there will be none or little.”

Steel mills are required to regularly conduct two types of tests for chromium. One measures total chromium, including a significantly less toxic form known as trivalent chromium. The other targets hexavalent chromium, a metal made infamous by the movie “Erin Brockovich.” It is so dangerous that the Midwest Plant’s water pollution permit limits daily discharges to 0.51 pounds.

The October spill discharged 56.7 pounds of total chromium into the Lake Michigan tributary, an amount 89 percent higher than the plant’s permit allows over 24 hours. More chromium likely would have poured into the water if a contractor hadn’t noticed an overflowing treatment tank and notified plant managers, according to the inspection report.

U.S. Steel said in a statement that it already has retrained its treatment plant operators and tweaked its monitoring equipment. The company’s response echoed a statement it released after the April incident.

“U.S. Steel has made enhancements to the parts of the facility where the failure occurred and is reviewing additional measures it can take to allow for earlier detection of future issues,” the April statement said, adding that company officials are “committed to the safety of our employees, to the communities in which we operate and to protecting the environment.”

U.S. Steel reported the latest spill in a letter that asked Indiana regulators to keep it secret. Law students at the University of Chicago discovered the letter last month while researching pollution problems at factories along the southwest shore of Lake Michigan for Surfrider, a nonprofit group that represents Great Lakes surfers.

“It is shocking and mind-boggling,” Mark Templeton, director of the Abrams Environmental Law Clinic at U. of C., said about the new documents. “Once U.S. Steel observed that the illegal chromium discharge was blue and full of solids, did they not run the test because they didn’t want to know the results?”

Templeton is preparing a lawsuit that will accuse U.S. Steel of repeatedly violating the federal Clean Water Act since 2011. Chicago Mayor Rahm Emanuel announced last month that the city is drafting its own lawsuit, citing the steel mill’s close proximity to a Lake Michigan drinking water intake off 68th Street.

$350bn investment in new casting equipment to ease production bottleneck JFE Steel.

TOKYO — JFE Steel plans to bring new continuous casting equipment online in Japan by the latter half of fiscal 2020, giving it greater freedom to raise crude steel output.

The roughly 40 billion yen ($354 million) investment at the Kurashiki section of its West Japan Works will increase crude steel production capacity by around 2 million tons annually if run at full capacity, the JFE Holdings unit said Thursday.

The section’s current production capacity has not been disclosed, but it produced around 8.8 million tons of crude steel in fiscal 2016.

Continuous casting equipment turns a mixture of molten metal from a blast furnace, steel scraps and additives into slab steel, which can then be processed into finished steel products.

JFE’s blast furnace capacity currently outstrips that of its casting facilities. Making upstream operations such as casting more productive will help the company increase output more flexibly in response to demand shifts. The new equipment is also meant to boost JFE’s ability to compete on cost and quality.

JFE is working quickly to strengthen its Japanese production base. The Tokyo-based steelmaker said Dec. 7 that it will invest around 27 billion yen to upgrade a coke oven at the western works’ Fukuyama section. It moved up the decision on the casting equipment investment, which had initially been considered for fiscal 2018 or beyond.

If there’s one thing Donald Trump and Barack Obama have in common, it’s their ability to crush once-soaring Chinese steel imports.

Imports of the metal from China totaled 52,590 metric tons in October, holding near the lowest level since February 2011, according to U.S. Census Bureau data. The volume of combined steel imports in Obama’s last full year in office in 2016 and Trump’s first year in 2017 are on track to be the fewest in a two-year period since 2002-03.

The decline began as the Obama administration passed a slew of import tariffs on steel from China, claiming that overcapacity was allowing the country to dump the metal in the U.S. Trump’s subsequent order this year to investigate whether steel imports threaten national security, which may have accelerated China’s recent decision to eliminate so-called dirty capacity in an environmental crackdown on polluters in its own country. Trump’s vow to rein in Chinese steel imports raised the possibility of a new round tariffs.

This Insight is the fourth in a series of five that look at China’s capacity reduction programme and its key implications. In this Insight, we examine the impact of improved Chinese capacity utilisation on EAF production elsewhere in the world, particularly South East Asia, and on scrap market dynamics and prices. We find that, given a stronger steel price environment and lower availability of both finished and semi-finished steel in China, EAF-based production elsewhere is higher. Furthermore, higher billet prices and stronger scrap demand are supportive of higher scrap prices. Margins for EAF-based producers will decline from current levels, but not to the lows of a few years back.

One of Britain’s largest steel companies has pledged to more than quadruple its steel-making capacity in the UK over the next five years as it continues its break-neck expansion.

Liberty House owner GFG Alliance has said it aims to increase its UK steel-making capacity to 5m tonnes a year from the current 1.1m tonnes in a strategy which could create hundreds of jobs.

If GFG achieves its target – which would require hundreds of millions in investment – then the company would be responsible for almost half the UK’s current total steel production.

The industrial group says its plan – which has not yet been funded and is part of its “Greensteel strategy” – would contribute to the “clean growth” initiatives laid out in the Government’s Industrial Strategy by slashing the amount of raw steel imported to the UK and dramatically increasing the amount of scrap steel which is recycled.

Jay Hambro, GFG chief investment officer, said the company would use electric arc furnaces part-powered by renewable energy to melt scrap steel so it can be reused, a process which is more environmentally friendly than primary steel-making in a blast furnace powered by coal.

“That link between energy and industry has been at the heart of our own ‘Greensteel strategy’ and we are greatly encouraged to see public policy going strongly in this direction.

“Greensteel, made using renewable energy, has only one tenth of the carbon footprint of blast furnace production and should form a key part of the clean growth focus.”

Mr Hambro said that while the Industrial Strategy singled out electric cars for development, these vehicles will still need steel to be built and GFG’s strategy will help provide a clean source of this.

GFG calculates that at the moment about 6.6m tonnes of raw steel are imported to the UK and 7.2m tonnes of scrap steel are exported.

The company believes that the UK is missing out on the opportunity to improve its environmental performance by reprocessing more scrap steel. It says Britain generates 10m tonnes of scrap steel a year, a level GFG claims is the highest of any developed economy and an amount which, on current trends, looks set to rise to 20m tonnes within a decade.

GFG – largely through its Liberty House arm headed by entrepreneur Sanjeev Gupta – has been expanding at a break-neck pace for the past two years and is now one the UK’s largest private industrial companies with about 5,500 staff.

 

The company first came to public attention when it reopened a mothballed steel plant in Newport at the height of the steel crisis which sent shockwaves through the sector in 2015. The crisis saw the collapse of some companies in the sector and others cutting jobs and selling assets.

Since then, GFG, which also owns Simec, has been on a £1bn-plus spending spree which has included snapping up assets from steel heavyweight Tata, the remnants of the collapsed Caparo industrial empire, and Rio Tinto’s aluminium smelter and hydro power plant in Scotland.

In Australia Liberty has purchased steel and mining business Arrium Group, which employs more than 5,500 staff.

Some have questioned how Liberty finances the distressed assets it buys, questioning the logic of buying businesses which others have been unable to make work.

The boss of Liberty Steel has revealed how close he came to buying Tata’s Port Talbot plant.

The BBC One Wales programme, Man of Steel, followed Sanjeev Gupta, for more than a year as he bought up parts of an industry in crisis.

Mr Gupta told of the disappointment when he realised he had lost Port Talbot to German firm ThyssenKrupp.

“We were one hair’s breadth away from doing it,” he said.

“But it did allow us to break out of our shell and reach for the stars.”

• Profile: Who is Sanjeev Gupta?
• 2016: A turbulent year for the steel industry
• Why is Port Talbot steelworks so important?

He added: “I did not believe it was not going to happen. I am a natural born optimist and I thought there must be a way.

“Even when it stopped, I lived in hope that it would happen. That’s how I got over it but it was quite disappointing.”

LIBERTY FACTFILE

• Founded in 1992 as a trading company by Sanjeev Gupta, while studying economics at Cambridge university
• The company now operates in 30 countries with more than 10,000 workers
• Its turnover is close to $6.8bn
• Its headquarters are in London but it has major offices in Dubai, Singapore, Hong Kong and Sydney.
• Recent acquisitions include OneSteel in Australia, which employs 6,000 people.
• Welsh interests include a hot rolled coil plant in Newport, which reopened in 2015 after being mothballed for two years

His wife, Nicola, also opened up about the tremendous pressure she feels is on her husband as the “saviour of the steel industry” and the impact his business life has on him and the family.

“It puts a lot of pressure on him to perform miracles, which is not what he’s trying to do,” she said.

Mr Gupta took over a steelworks in Newport, putting workers on half-pay and allowing them not to come in and take other jobs, waiting for the moment when he could reopen the site as Liberty Steel.

It reopened on the day the then-prime minister, David Cameron, was holding a crisis summit on the UK steel industry.

This was in a perfect storm of high energy costs, high business rates and cheap imports from China.

When Tata put its entire UK operations up for sale, including Port Talbot, Mr Gupta emerged as an unlikely buyer.

• Man Of Steel: Sanjeev Gupta will be shown on BBC One Wales on Tuesday 28 November at 22:40 GMT and later on the BBC iPlayer.

Hundreds of Welsh steel jobs have been safeguarded after the UK’s second-largest producer agreed a multi-billion debt refinancing.

Spanish steel giant Celsa, which employs about 600 workers making steel at its Cardiff base and has a further 1,400 UK staff, has agreed a deal that will almost halve its debt load, easing pressure on the company’s finances.

Celsa has agreed a deal with a consortium of Spanish lenders that will cut its debt pile from €2.67bn (£2.4bn) to €1.43bn over five years.

The remaining €1.24bn will be taken off the company’s balance sheet until it matures in 2023, giving Celsa the breathing space it needs to continue.

There had been speculation this summer that the debt mountain would force Celsa into a painful round of cost cuts, job losses and disposals as lenders piled on the pressure.

Celsa had avoided reductions in staff and the sale or closure of sites that many of Britain’s steel makers were forced into two years ago as the sector was plunged into crisis by a combination of a flood of mainly Chinese imports, rising raw material costs and high energy prices.

The company said the deal would “normalise its financial situation” and it led it to upgrade its forecasts for the year.

Celsa Group now expects turnover of €4.5bn this year and pre-tax earnings of €450m, increases of 30pc and 50pc respectively.

“This agreement gives full support to our strategic plan and allows us to look to the future with guarantees,” the company said in a statement.

Celsa’s UK operations make rebar steel used in construction to reinforce concrete. The company has an annual production capacity of 1.1m tons in Britain, although it is thought to be working at about 70pc of this rate at the moment.

Last year the company won a £100m deal to supply 200,000 tons of steel to help build the massive Hinkley Point nuclear power station. Celsa has also been helped by the rising price of rebar.

According to data from ISSB, rebar produced in Northern Europe has risen in price from about €475 per ton to €555 since the start of the year, while raw material prices have remained flat.

Source from: By Alan Tovey, The Telegraph