According to a report issued recently by the National Development and Reform Commission regarding the elimination of outdated iron and steel capacities in China, Lingyuan Iron and Steel Group has been urged to eliminate all of its 2.2 million tons of iron and steel capacity.

The NDRC expects the new Chaoyang facility to replace the soon to be eliminated capacity resulting in little net effect on Lingyuan Steel's output. However given that Lingyuan Steel only holds a 25% stake in the new facility with the remaining 75% held by Anshan Iron and Steel Group the elimination of the old 2.2 million tonne capacity will be disastrous for Lingyuan Steel.

Lingyuan Iron and Steel Group official said that "The 2009 deadline for capacity elimination has been set to coincide with the completion of our 2 million tonne steel plate facility in the city of Chaoyang in Liaoning Province. Although our capacity cannot be considered outdated by NDRC standards, we pledged to eliminate the 2.2 million ton old capacity when applying for approval for the new 2 million tonne project. We only made the commitment to attain NDRC approval, which was around the time the state commenced imposing tight controls on new iron and steel facilities. We did not expect the NDRC to hold us to the pledge as they are currently doing."

The official believes that Lingyuan will either be acquired by Angang or will introduce other shareholders in order to change its state-owned nature and avoid having to eliminate capacity. The official added that Lingyuan Steel is the largest steelmaker in the city of Lingyuan, contributing 60% to local government revenues and is hoping that the Lingyuan city government and the Liaoning provincial government will petition the NDRC to reconsider their request.