Jun 12, 2012 06:27 PM

Illegal Steelmaker Moves Out of Shadows


(Beijing) — The National Development and Reform Commission (NDRC) has legally recognized Hebei province-based steelmaker Shougang Qiangang Co. Ltd., which had operated in a gray area for a decade. This is a sign that dozens of state-owned and privately held steel mills see hopes of having their production capacity, some already in use for years, officially recognized.

Qiangang's application was approved by the NDRC on May 25, allowing the company to shed the label heihu, or illegal steelmaker. Many other heihu operations are seeking similar recognition and those that pass environmental inspection have a better chance.

Although heihu steelmakers face a small chance that the government will close them down, formal recognition will add certainty to their expansion plans and add weight in the capital market.

Heihu plants churned out 79 percent of the 357 million tons of crude steel produced nationwide between 2005 and 2011, according to research by the China Metallurgical Industry Planning and Research Institute.

Some of these are new plants set up by relocated steel factories. Qiangang was established in 2002, when its parent, Shougang, agreed to relocate to support Beijing's air-quality campaign before the 2008 Olympic Games. It started production in 2004 and expanded several times to reach a yearly capacity of 7.8 million tons of iron, 8 million tons of steel and 7.8 million tons of hot-rolled strip.

An official at Shougang, one of China's top five steel makers, said they did not worry about the legality of production activity, but without a license the highly profitable Qiangang could not be incorporated into the public company under the same group – Shanghai-listed Shougang Ltd.

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