Report: China Preparing to Slash Steel Production to Fight Smog

The smog has been especially bad in China this year. A friend of mine almost died due to the toxic air and had to be hospitalized during his stay in the great walled nation. Perhaps in response to that, or a desire to jimmy rig steel/aluminum prices higher, China is preparing to place harsh restrictions on coal, in addition to slashing production for steel, aluminum and fertilizer — according to Reuters.

Source: Reuters

China is considering forcing steel and aluminum producers to cut more output, banning coal in one of the country’s top ports and shutting some fertilizer and drug plants as Beijing intensifies its war on smog, a draft policy document shows.

The Ministry of Environmental Protection (MEP) has proposed the measures in the document seen by Reuters. If implemented, they would be some of the most radical steps so far to tackle air quality in the country’s most polluted cities.

The move comes after China’s northeast has battled some of the worst pollution in years as emissions from heavy industry, coal burning in winter and increased transport have left major cities including Beijing blanketed in thick smog.

The document outlines plans to cut steel and fertilizer capacity by at least half and aluminum capacity by at least 30 percent in 28 cities across five regions from around late November to late February.

By July, it would stop Tianjin, one of the nation’s busiest ports, handling coal, with shipments diverted to Tangshan, 130 kms (80 miles) to the north, which would shift large volumes of coal transport from trucks to rail.

Tianjin, China’s second largest by cargo volume, is the key hub for trading 100 million tonnes a year of seaborne coal and domestic coal that flows south from Inner Mongolia, the report said.

By September, ports in Hebei province would not be allowed to use trucks to carry coal from railways to ships.

Based on the cuts over three months, the measures would reduce China’s total annual steel output by 8 percent annually and aluminum output by 17 percent, according to Reuters calculations.

This is super bullish for the metals, namely $X. My bets are on $CLF, $TECK, $HBM and $VEDL. Being that CLF does a lot of business with China, I’m not sure a cut in Chinese steel production is exactly positive for the shares. However, any cut in Chinese production will likely be made up elsewhere. Plus, price gains for the base metals will provide a very strong backdrop for the bullish narrative.