China orders closure of small steel mills

China orders closure of small steel mills. The Chinese government has ordered the closure by the end of 2011 of steel mills with blast furnace capacities of less than 400 cubic meters. China's 2009 steel production capacity was listed as 700 million tons, and the country's mills produced less than 568 million tons in that year. Closing the mills is intended to improve both steel pricing and margins. China buys iron ore from BHP Billiton (BHP), Rio Tinto (RTP), and Vale (VALE), and all of these stocks have been affected by the move. The government also said that it plans to shut down antiquated production capacity in sectors including power generation, coal mining, coal coking, and other industries in an effort to reduce the country's energy consumption and to reduce polluting emissions. This year, coal-fired power plants totaling more than 50 gigawatts of capacity will be shuttered, as will 8,000 small coal mines. The government's effort to reduce the country's steel making capacity is no doubt partly in response to rising iron ore prices. China buys iron ore from BHP Billiton (BHP), Rio Tinto (RTP), and Vale (VALE), all of which have recently shifted their pricing scheme to a quarterly contract and away from the annual benchmarking system that has been in effect for 40 years. The move has virtually doubled the price of iron ore, and China has so far resisted signing contracts at the new price. Chinese iron ore miner Angang has indicated that it plans to double production in the next 10 years at a cost of about $2.15 billion. Angang now produces about 45 million tons of iron ore annually. To put those amounts in perspective, in the month of February, China imported nearly 50 million tons of iron ore.