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Singapore-listed Delong Holdings shuts China steel mill after workers strike

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SHANGHAI, Aug 23 (Reuters) - A steel mill in northern China's Hebei province that was about to close as part of the country's capacity reduction plans has shut early after workers went on strike in protest against low rates of compensation, the mill's owner said.

China's steel sector has faced growing unrest in recent years because economic distress in the industry, with workers frequently taking action against owners in pursuit of unpaid wages.

Singapore-listed Delong Holdings said in a statement on Tuesday that it discontinued operations at its Aoyu Steel plant in the city of Laiyuan in western Hebei "with immediate effect" following the strike.

Delong said the worker protests "arose from rumours being circulated that the compensation to be paid to affected workers... will be lower than expected".

The company did not immediately respond to requests for comment when contacted by Reuters on Wednesday, but a local police official said negotiations between the company and its workforce were still ongoing.

A local union representative told Reuters that an agreement had not yet been reached to "appease the mood" of the staff.

"Workers just want to find another job nearby in Laiyuan, but we have no plan ready to arrange this," he said.

In April, Delong entered into an agreement to transfer 1.21 million tonnes of steel production capacity from Aoyu Steel to the southeast China-based Tsing Tuo Group for 400 million yuan ($60 million), part of smog-prone Hebei province's efforts to slash steel capacity by as much as 86 million tonnes over the 2013 to 2020 period.

Delong said the payment, which has already been received, was to have been used to cover the severance pay for laid-off staff once the firm received formal notification from regulators to shut down.

China's steel industry had relied on low interest rate loans and strong local government support, with Beijing worried about the impact that mass layoffs would have on "social stability", especially in Hebei province, which surrounds the capital.

But mounting debts and losses in the sector prompted the government to restrict lending and force hundreds of technologically backward "zombie" firms to close.

China launched a campaign last year to shed as much as 150 million tonnes of annual steel production and 500 million tonnes of coal production to shore up prices. It also set up a special 100 billion yuan fund to handle layoffs in the two sectors, which were estimated to reach 1.8 million workers. ($1 = 6.6631 yuan)

(Reporting by David Stanway in SHANGHAI, Tom Daly and the Beijing newsroom; Editing by Christian Schmollinger)

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