China to cull shoddy steel production by Q2

BEIJING - China will phase out production of low-quality steel made from scrap metal, or "ditiaogang," before the end of June, the country's top economic planner said.

Authorities have sent 12 inspection groups to some areas including Hebei, Henan, Guangxi and Heilongjiang to oversee the move, according to Lin Nianxiu, deputy director of the National Development and Reform Commission, on Tuesday.

He made the remarks at a meeting of the China Iron and Steel Industry Association addressing steel capacity cuts in 2017.

"Inspectors have found local implementation of a production ban on ditiaogang worrisome," Xu Lejiang, vice minister of industry and information technology, said at the meeting.

Xu said that producers still considered a total phasing out unlikely because it caused unintended "collateral damage" to certain plants.

He said that most of the targeted steelmakers were small mills running medium frequency furnaces, and that inefficient furnaces were highly-polluting and prone to churn out subpar products.

Lin said China had absolute zero tolerance for low-quality steel.

Lin said that to step up capacity cuts, satellites would be used for the first time to supervise production and emission of steel producers. He added that the country would rein in new production capacity, scrutinize new projects, push for more mergers and tighten supervision in the steel sector.

China launched a nationwide crackdown on ditiaogang in December 2016, affecting about 4 percent of the country's steel output.

In a high-profile case, two ditiaogang producers were singled out by central authorities for disrupting the reduction of excess capacity in the sector.

The country has also imposed a higher electricity price on producers set to be phased out, starting from Jan 1, 2017.

China plans to reduce crude steel output by 100-150 million tons by 2020. It met its 2016 target, to cut 45 million tons, ahead of schedule.