China's new environmental policy will affect only 6.6 million tonnes of crude steel output, or 2% of China's total capacity, said Barclays in a research note on August 29.
The world's total steel maker will reduce steel output by up to 50% to curb pollution during the winter heating season, aiming to improve air quality in major cities, showed an action plan issued by the Ministry of Environmental Protection on August 24.
The action plan, which targets air pollution in the Beijing-Tianjin-Hebei region and neighboring areas, asked steel mills in Shijiazhuang, Tangshan, Handan of Hebei province and Anyang of Henan province to operate at half of their furnaces capacity during the coming winter.
Authorities will check the cutbacks with the actual electricity consumption, the ministry said.
Steel, coking plants and foundries will partially implement off-peak production strategies as to mitigate emissions of pollutants, it said.
If the measures are well implemented, there would be 21 million tonnes of steel production affected. But Barclays said such a massive reduction would be less likely to occur.
Steel mills could respond in various ways: by over-reporting idle capacity, ramping up high-grade ore usage, or trade electricity quotas with other firms, the bank said.
"Given this, we believe mills could offset 85% of the output reduction during the heating season," it said.
The bank, however, also pointed out that those violating the policy would be severely punished once caught, as the Chinese government is stringent on reducing smog days.
During the first two months this year, PM2.5 concentration surged 5.4% year on year in the Beijing-Tianjin-Hebei region, raising deep concern of the Chinese government.
In a response, the government pledged in the action plan to lower PM2.5 concentration in the region by 15-25% and reduce smog alerting days by 10-20% from the year prior.
(Writing by Alex Guo Editing by Harry Huo)
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