Gloom for Hebei as steel loses shine

Steelmakers in north China's Hebei Province, which produces at least one fifth of the country's total crude steel, are struggling to survive through industrial reforms amid overcapacity and pollution concerns.

A slight yet nerve-wracking 0.6-percent drop in crude steel output last year, the first drop since the year 2000, has left companies pessimistic about their destiny in the Chinese Year of the Ram, which began last Thursday.

Backed by its rich iron ore reserves, Hebei has for decades been a leading steel producer in China. Its annual output has surpassed that of Japan, the world's second-largest steel-producing country.

Last year, crude steel output in Hebei added up to 185 million tonnes, 22 percent of China's total 823 million tonnes.

As demand keeps shrinking and signs of overcapacity become more apparent, the central government has decided to cut China's steel and iron production by 80 million tonnes in three years.

The decision came as a heavy blow to local steelmakers, who were already struggling with deficits and pollution accusations: of the 10 most polluted Chinese cities last year, seven were in Hebei Province.

Gone are the days when the steel mills' production lines were compared to "banknote printers" as steelmaking was more lucrative than any other trade, said Kong Delin, a steel plant manager.

His company, once a cash cow in Qianan, a county-level city in Hebei, has been closed for more than a year. Its former workshops are deserted and the 450-cubic-meter furnace that used to be a great source of pride for locals has been reduced to a pile of waste iron.

DOWN AND OUT

Kong, 40, had tears in his eyes as he recalled the company's short-lived glory.

Jianyuan Steel and Iron Co. Ltd. was founded in 1992 amid soaring global demand. Kong joined the company in 2002, working his way up from a young engineer to deputy general manager.

"In our heyday, the market was so hungry for steel that billets were loaded onto container trucks immediately after they came out of the furnace," he said.

"People joked that steel company bosses carried huge sacks of cash to buy luxury cars, and if the sales assistant did not show due respect, they'd buy the car showroom."

By the time Kong joined Jianyuan, the company had helped the underdeveloped Qian'an County to shake off poverty and become one of the 100 richest counties in China.

But its glory did not last long. Business began to slump in 2008, under the impact of the international financial crisis. In 2012, steel prices dropped drastically to the 1990s level.

Locals applied gallows humor to the degree to which profits generated by each tonne of steel had shrunken over the past decade.

"Ten years ago, it was equivalent to the price of a cell phone [about 3,000 yuan or 480 U.S. dollars]. After 2010, it was worth about the same as one kg of pork [about 30 yuan] and today, it is dirt cheap," said Kong.