China's Two Sessions expected to target steel industry carbon emissions from wisepowder's blog
S&P Global Platts Analytics expects a number of carbon
emissions-related policy changes to China's steel industry to be
announced during China's National People's Congress and Chinese People's
Political Consultative Conference, or the Two Sessions, starting in
Beijing on March 4.To get more news about LiangHui 2021, you can visit shine news official website.
Platts expects that to achieve carbon neutrality by 2060, a series of policy changes comprising steel production reduction, steel export rebate cuts, the increase of scrap utilization, development of electric arc furnaces, as well as the establishment of a carbon emissions quota trade, are likely to be announced during or shortly after the NPC and CPPCC.
China's Ministry of Industry and Information Technology has cited the plan to cut steel output no less than three times already in 2021 as the most effective way to reduce emissions. But this could hurt the profitability of steel end-users, or even drive up inflation. This is because steel demand is expected to continue rising modestly in 2021, so any year-on-year steel output decline could trigger a sharp rise in steel prices.
Platts Analytics expects steel output cuts to occur in the second half of 2021, as demand is likely be lower in H2 than in H1. Implementation of emissions quotas could be a way to enforce production cuts if emissions quotas allocated to mills are exceeded.
The Ministry of Ecology and Environment is taking the lead in setting carbon emissions quotas and a trading mechanism. Some mill sources said setting emission quotas for hundreds of steel mills is complex, and it remained unclear when more details will be announced. If steel output cuts began to hurt downstream users, they could be loosened or lifted.Export rate reductions could occur later this year to discourage exports and indirectly steel production. But cutting export rebates by too much and too quickly will hurt steel industry profitability. The average profit margin for China Iron & Steel Association members was 4.4% in 2020, down from 4.6% in 2019.
A likely scenario could see rebates reduced for comparatively low-end steel products, such as long steel and hot-rolled coil, from 13% to 9%, while high-end products, like cold-rolled coil and hot-dip galvanized coil, remain unchanged at 13%.This strategy is expected to be reiterated during the Two Sessions. But to establish a mature scrap supply chain is likely to take another two to three years, while electricity shortages will continue to hold back the development of electric arc furnaces or EAFs.
China plans to increase its domestic scrap supply to around 300 million mt/year by 2025, up from 240 million mt/year in 2019, meaning the increase of scrap supply is only about 10 million mt/year over 2020-2025.Scrap imports may amount to just a few million mt in 2021, as recovering overseas demand for scrap has already pushed up overseas scrap prices.
Platts Analytics forecasts that China's net EAF capacity expansion will be about 13.3 million mt/year in 2021, taking the country's total EAF capacity to about 196 million mt/year by the end of 2021. This would account for 15% of China's total crude steel capacity. However, the net expansion will slow down after 2021 to probably just 7 million mt/year in total over 2022-2024.Platts Analytics believes blast furnaces and converters will remain the main route to making iron and steel, with EAFs a supplement. However, gradually increasing scrap supply will help to increase scrap utilization rates in converters. The scrap ratio in Chinese converters can be boosted to as high as 20%-30%, while the ratio surveyed by Platts in Q4 2020 averaged 18%.
Platts expects that to achieve carbon neutrality by 2060, a series of policy changes comprising steel production reduction, steel export rebate cuts, the increase of scrap utilization, development of electric arc furnaces, as well as the establishment of a carbon emissions quota trade, are likely to be announced during or shortly after the NPC and CPPCC.
China's Ministry of Industry and Information Technology has cited the plan to cut steel output no less than three times already in 2021 as the most effective way to reduce emissions. But this could hurt the profitability of steel end-users, or even drive up inflation. This is because steel demand is expected to continue rising modestly in 2021, so any year-on-year steel output decline could trigger a sharp rise in steel prices.
Platts Analytics expects steel output cuts to occur in the second half of 2021, as demand is likely be lower in H2 than in H1. Implementation of emissions quotas could be a way to enforce production cuts if emissions quotas allocated to mills are exceeded.
The Ministry of Ecology and Environment is taking the lead in setting carbon emissions quotas and a trading mechanism. Some mill sources said setting emission quotas for hundreds of steel mills is complex, and it remained unclear when more details will be announced. If steel output cuts began to hurt downstream users, they could be loosened or lifted.Export rate reductions could occur later this year to discourage exports and indirectly steel production. But cutting export rebates by too much and too quickly will hurt steel industry profitability. The average profit margin for China Iron & Steel Association members was 4.4% in 2020, down from 4.6% in 2019.
A likely scenario could see rebates reduced for comparatively low-end steel products, such as long steel and hot-rolled coil, from 13% to 9%, while high-end products, like cold-rolled coil and hot-dip galvanized coil, remain unchanged at 13%.This strategy is expected to be reiterated during the Two Sessions. But to establish a mature scrap supply chain is likely to take another two to three years, while electricity shortages will continue to hold back the development of electric arc furnaces or EAFs.
China plans to increase its domestic scrap supply to around 300 million mt/year by 2025, up from 240 million mt/year in 2019, meaning the increase of scrap supply is only about 10 million mt/year over 2020-2025.Scrap imports may amount to just a few million mt in 2021, as recovering overseas demand for scrap has already pushed up overseas scrap prices.
Platts Analytics forecasts that China's net EAF capacity expansion will be about 13.3 million mt/year in 2021, taking the country's total EAF capacity to about 196 million mt/year by the end of 2021. This would account for 15% of China's total crude steel capacity. However, the net expansion will slow down after 2021 to probably just 7 million mt/year in total over 2022-2024.Platts Analytics believes blast furnaces and converters will remain the main route to making iron and steel, with EAFs a supplement. However, gradually increasing scrap supply will help to increase scrap utilization rates in converters. The scrap ratio in Chinese converters can be boosted to as high as 20%-30%, while the ratio surveyed by Platts in Q4 2020 averaged 18%.
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