Chalco, Hebei Steel, Cement Makers Must Shut Outdated Plants, China Says

China, seeking to cut energy intensity by 20 percent, said Aluminum Corp. of China Ltd., Hebei Iron & Steel Group and more than 2,000 companies must shut outdated plants by September or lose financial support.

Companies that fail to meet the deadline will be barred from obtaining loans, and won’t get approval for new investments and land access, the Ministry of Industry and Information Technology said in a statement on its website. The ministry named companies in the steel, metals, paper and cement industries.

China, the world’s fastest-growing major economy, consumed more energy in the first half for every economic unit produced, threatening a five-year target. The shutdowns may accelerate a slowdown in industrial output growth, with the nation set to post the weakest expansion since August 2009, according to economists surveyed by Bloomberg News.

“This is the strongest warning the government has ever given to companies on capacity shutdowns,” said Zhou Xizeng, chief analyst with Citic Securities Co. “This is the first time we’ve seen the details of the facilities and company names. The government’s counter-measures are also stronger than before.”

Aluminum Corp., known as Chalco, plans to exceed government targets for closures, Shen Hui, a spokeswoman with China’s largest producer of the metal, said by phone. The company’s units should close 120,000 metric tons of capacity, the ministry said. That’s about 3 percent of Chalco’s 2009 capacity.

Closure Targets

The State Council, the nation’s cabinet, in May asked local governments to ensure targets for cutting overcapacity and pollution are met by the third quarter. China earlier issued environment standards for steelmakers and removed electricity rebates for aluminum producers to curb capacity and pollution in energy-intensive industries.

Energy used per unit of GDP rose 0.09 percent in the first six months from a year earlier. In the first four years, the reduction was 14.4 percent, Premier Wen Jiabao said in May. The nation also plans to cut output of carbon dioxide per unit of GDP by between 40 percent and 45 percent of 2005 levels by 2020.

“Many doubt the government’s capacity-closure measures would take effect,” Zhou said. “I believe it will because of these closure details. It is part of the government’s efforts to save energy use and cut emissions.”

Industrial output growth in July may have climbed 13.4 percent from a year earlier, after a 13.7 percent gain in June, according to the median estimate of a Bloomberg News survey of 29 economists. The data are scheduled for release on Aug. 11.

Cement Curbs

China will close 100 million tons of cement production capacity, 5 percent of the total, and 35 million tons of iron, 5 percent of installed capacity, by the end of next month, Luo Wei, a Shanghai-based analyst with China International Capital Corp., said in an e-mailed note today. Last year, the government shut 80 million tons of cement-making capacity and 21.1 million tons for iron, he said.

“This is the most intensive effort the government has ever taken in capacity closure,” Luo said in the note. “It would have limited impact on listed companies as it mainly targets the privately owned producers.”

Handan Iron & Steel Group, a unit of Hebei Steel, should close three steel converters, which have combined capacity of 900,000 tons, the ministry said. Chengde Xinxin Vanadium and Titanium Co. and Xuanhua Iron & Steel Co., two units of Hebei Steel, should shut furnaces with a combined capacity of 700,000 tons, it said. Hebei Steel is China’s largest steelmaker.

Wuhan Closures

Wuhan Iron & Steel Group’s Kunming Iron & Steel Co., Baosteel Group Corp.’s Guangdong Shaoguan Iron & Steel Group, Chongqing Iron & Steel (Group) Co. and Xinyu Iron & Steel Co. were also among the steelmakers in the ministry’s list.

Wang Weigang, a Hebei Steel spokesman, said he couldn’t immediately comment on the closure plans. Bai Fang, Wuhan Steel’s spokesman, can’t be immediately reached for comment.

Shandong Aluminium Industry Co., a unit of Chalco, must shut a facility with an annual capacity of 20,000 tons, the ministry said. Yunnan Chihong Zinc & Germanium Co. and Shanxi Guanlu Co. were also asked to shut metal smelting capacities. Officials at Shanxi Guanlu and Yunnan Chihong couldn’t be immediately reached for comment.

--Helen Yuan, with assistance from Xiao Yu in Beijing. Editors: Tan Hwee Ann, Indranil Ghosh.

To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

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