Substandard steel has started to re-emerge, only half a month after the 30 June 2017 deadline for cleaning it all up.
This is mainly due to its huge profitability: the illegal use of a medium frequency furnace, used to make substandard steel, could generate C¥100,000 to C¥500,000 per day, notes the director of a steel factory in Tangshan. Though substandard steel was listed by the government as backward capacity as early as 1999, the 30 June 2017 deadline was the first time the clean up became a political task, notes Du Hui 笃慧 Zhongtai Securities analyst.
The production of substandard steel is usually hidden in remote and rural areas, sometimes under the disguise of legitimate large-scale steel factories. Without any dust removal equipment, manufacturing usually happens during smoggy days or at night, notes Wall Street News. The de-capacity campaign also caused a fall in steel supply, creating a need for replacement steel. The price of rebar futures soared 18 percent this year to C¥3,500 per tonne, adds Wall Street News.