Oct 28, 2020
China’s next five-year plan to boost steel scrap use
2020-10-30
China's next five-year plan is expected to maintain rapid urbanisation that will keep steel demand high but prompt a shift in the steel sector towards more scrap use and modern pollution controls.
The fifth plenum of the 19th Communist Party of China (CPC) central committee is meeting in Beijing on 26-29 October to discuss the country's 14th five-year plan for 2021-25 and long-term goals to 2035, which emphasise development of new technologies and environmental goals. The full plan will be released in March.
"Urbanisation during the 14th five-year plan should still support iron ore and steel because of demand for infrastructure construction, but lower emissions should be a pressure. Mills may have to increase costs to update mills to reduce emissions. So, I think overall the 14th five-year plan may be neutral to the steel industry," a Hebei-based steel mill manager said.
Longer term, China last month committed to becoming carbon neutral by 2060, aiming for its CO2 emissions to peak before 2030. For China's 1bn t/yr steel sector, a reduced carbon footprint will require a shift away from blast furnace-based mills to electric arc furnaces (EAFs) that recycle steel scrap. Blast furnaces that use iron ore and coke produce around 90pc of China's steel.
China needs to expand its scrap recycling supply chain and open the window for scrap imports to better achieve its carbon targets in the next year five-year plan, He Wenbo, executive chairman of the China iron and steel association (Cisa) said at a Cisa forum last month.
China may release a new standard for scrap imports soon, which will likely lead to a restart of scrap imports next year.
"The government may focus on reducing carbon emissions in the next five years and to some extent the structure of steelmaking will change. The percentage of EAF mills is likely to increase. The large and medium-sized state-owned mills will speed up mergers and acquisitions to maintain competitiveness and EAF steel capacity will be encouraged, outdating backward capacity," a Shanghai-based trader said.
Post-peak steel demand with less real estate investment will aid in the shift to cleaner steelmaking, he said. The government has discouraged speculation in housing markets and "we are viewing this as a mild signal to this market in the near term but remaining bearish in the long term".
The new five-year plan will accelerate carbon emissions trade and incorporate steel, cement, chemical and paper-making industries into the market, Li Gao, head of the ministry of ecology and environment's climate change department. said at the ministry's briefing in September. Market forces will play a bigger role in regulating carbon emissions and rely less on direct government measures, Li said.
The current 13th five-year plan for 2016-2020 ends the period that China's calls its "two-century goal" of building a well-off society. The 14th plan marks the start of the second century goal of developing a modern socialist country that will rely less on steel.
"The steel industry is obviously not the focus of the future and there will be no strong stimulus for the real estate industry. I expect some policies on urbanisation," another Shanghai trader said. He is also watching for policies on the internationalisation of the Chinese yuan, which may expand its role in commodity trade.
"It could lower the risks generated by the dollar or third-party currencies in foreign trade and reduce the cost of exchange, and then improve the efficiency of import and export. There is no doubt iron ore trade would benefit as well," the trader said.
China's steel sector has undergone a significant change in the current five-year plan.
The industry removed 200mn t/yr of excess capacity and upgraded 610mn t/yr of capacity for ultra-low emissions during the 13th five-year plan, Zhao Yingmin, vice-minister of the ecology and environment ministry, said on 21 October. China's carbon emissions per unit of GDP in 2019 decreased by 18pc since 2015 and by 48pc since 2005, a year ahead of target, he said.
China has 228 steel companies upgrading to ultra-low carbon emission standards and among them, 82 steel enterprises with 330mn t/yr capacity are under supervision and assessment, Liu Bingjiang, head of the ecology and environment ministry's air quality management department, said at the Cisa forum last month.
By Kitty Xie and China staff
Source: Argus
