Chinese city shuts factories as environmental law bites

SHANGHAI/HONG KONG (Reuters) - An industrial city in eastern China has closed several factories, including many steel and nickel pig iron producers, in an apparent sign the government is stepping up enforcement of a new environmental law in the face of growing public discontent over pollution.

Premier Li Keqiang told the annual session of the National People's Congress, or parliament, on Thursday his government would do everything it could to fight pollution.

China's vast and energy-intensive steel sector is at the heart of the government's war on pollution, but it also encapsulates the challenges of curbing smog without denting the economy. Complying with stricter standards would have knock-on effects throughout industry and raise costs for steel producers who are already feeling the pinch of tepid demand.

Most steel producers in Linyi, a city in coastal Shandong province, appear to have been shuttered, industry sources said. "Almost all the steel-making production in Linyi has closed, and there is no date for when to resume production," said an official with Linyi Yuansheng Casting Co Ltd, one of the mills in the city, who declined to be identified.

An official from another mill, Linyi Jiangxin Steel Co Ltd, said the company has stopped production, without elaborating. Calls to other mills in the city, including Linyi Steel and Shandong Shanwei Group, as well as to the officials of the city and provincial government, went unanswered.

While steel production in Linyi is relatively small - about 7-8 million tonnes a year out of China's total annual capacity of up to 1.2 billion tonnes - the closures sent a message.

There was no official estimate on how much steel production was affected by mill closures in Linyi, but the news sent Dalian iron ore futures slumping some 4 percent amid fears the crackdown would spread to other mills, potentially cutting demand for the steel-making commodity.

"Beijing's battle against pollution will increase costs for steel mills and force those uncompetitive ones to go bust eventually," said Cheng Xubao, an analyst with industry consultancy Custeel.


A new environmental law went into effect on Jan. 1, giving the country more powers to punish lawbreaking officials. China also appointed a UK-trained environmental scientist as the new environment minister late last month, raising hopes for change.

Last week, inspectors from the Ministry of Environmental Protection summoned mayors from the cities of Linyi and Chengde in the northern province of Hebei, urging them to crack down on firms that have violated environmental laws.

Some nickel pig iron producers in Linyi faced permanent closures, too, if they do not have funding to upgrade facilities to meet China's tougher environmental standards after local authorities ordered them to halt production this week, industry sources said.

Nine nickel pig iron plants were among some 50 factories in the prefecture-level city to close this week, local media reported.

China is the world's top producer of nickel pig iron (NPI), a cheaper alternative to refined nickel and ferro-nickel. Shandong is a leading producer of NPI in China and many plants are located around Linyi.

"This could be a consolidation if some plants do not have the funding to do upgrading," said a trading manager at Shengyang Group, which operates one of the nine closed nickel pig iron production plants.

An executive at another closed nickel pig iron producer, Linyi Jinhaihui Technology Co Ltd, said the firm did not know when it could resume production although it believed that the plant meets environmental standards.

"All industrial firms have stopped production, no matter they meet the standards or not. The authorities have not said clearly what we should do," the executive said.

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