Credit controls imposed on China's debt ridden steel sector have left many producers unable to afford upgrades needed to survive the country's war on pollution and 80 million tonnes of capacity could shut in two years.

Mr Zhao Xizi chairman of the All China Chamber of Commerce for Small and Medium Sized Metallurgical Enterprises said that that in some regions, around 70% of firms could not pay for the renovations needed to meet tough new environmental standards and with loans to the steel sector cut by around 10% since the beginning of the year, banks have been unable to help.

Mr Zhao said that “As much as 80 million tonnes could be forced to shut in the next two years alone, meaning that China will meet its closure targets with relative ease. You can draw this conclusion: if all these policies are brought in and all local governments implement them, there will be a large number of enterprises forced to close this year and next year, involving 80 million tonnes of capacity.”

He said that from the second half of this year, around 200 private steel firms with capacities of less than 1 million tonnes a year would face power and water prices designed to drive smaller players out of the market, putting 60 million tonnes of capacity at risk of closure. An additional 70 million tonnes of low quality steel production is also expected to be shut and replaced.

Poor economic conditions and chronic overcapacity brought Chinese steel prices to their lowest point in 20 years in the Q1 of this year and a nationwide campaign to tackle pollution has also raised costs and helped put hundreds of plants on the brink of bankruptcy.