Summary: China's next five-year plan is expected to maintain rapid urbanization, which will keep steel demand high while prompting the steel industry to increase scrap steel usage and implement modern pollution control.
Beijing, October 28 - China's next five-year plan is expected to maintain rapid urbanization, which will keep steel demand high while prompting the steel industry to increase scrap steel usage and implement modern pollution control.
The Central Committee of the Communist Party of China held its Fifth Plenary Session in Beijing from October 26 to 29 to discuss the 14th Five-Year Plan (2021-2025) and long-term goals for 2035, with emphasis on new technology and environmental targets. The full plan will be released in March next year.
A manager at a steel plant in Hebei said that urbanization during the 14th Five-Year Plan period will continue to support iron ore and steel demand due to infrastructure construction, but there will be pressure to reduce emissions. Plants may need to increase costs to upgrade equipment for emission reduction. Therefore, the overall impact of the 14th Five-Year Plan on the steel industry could be neutral.
In the long term, China last month pledged to achieve carbon neutrality by 2060 and peak carbon dioxide emissions before 2030. For China's 1 billion tonne-per-year steel industry, reducing carbon emissions means shifting from blast furnaces to electric arc furnaces (EAF) that use recycled scrap steel. At present, around 90% of China's steel is produced in blast furnaces using iron ore and coke.
He Wenbo, executive chairman of the China Iron and Steel Association, said at a forum last month that China needs to expand its scrap metal recycling supply chain and open the door to scrap steel imports to better achieve carbon reduction targets in the coming five-year plan.
China may soon release new standards for scrap metal imports, which could lead to a resumption of scrap steel imports next year.
A Shanghai trader said that over the next five years, the government may focus on reducing carbon emissions, and to some extent the steelmaking industry will undergo structural changes. The share of EAF plants is likely to increase. Large and medium-sized state-owned steel mills will accelerate mergers and acquisitions to remain competitive, while EAF steelmaking capacity will be encouraged and outdated capacity phased out. Post-peak steel demand and reduced real estate investment will help the steel industry become cleaner. The government has curbed speculation in the real estate market. In the short term, this is a moderate signal to the property market, but in the long term it remains bearish.
Another Shanghai trader said that the steel industry is clearly not the focus of the future, and there will be no strong stimulus for the real estate sector. He expects some urbanization policies and is paying attention to RMB internationalization policies. The RMB may expand its role in commodity trade, thereby reducing the risks posed by the US dollar or third-party currencies in foreign trade, lowering exchange costs, and improving import and export efficiency. Undoubtedly, iron ore trade will also benefit.
China's steel industry has undergone major changes during the current five-year plan. On October 21, Zhao Yingmin, Deputy Minister of the Ministry of Ecology and Environment, said that during the 13th Five-Year Plan period, China eliminated 200 million tonnes per year of overcapacity and upgraded 610 million tonnes per year of ultra-low emission capacity. In 2019, China's carbon emissions per unit of GDP fell by 18% from 2015 levels and by 48% from 2005 levels, hitting the target one year ahead of schedule.
Liu Bingjiang, head of the Air Quality Management Department of China's Ministry of Ecology and Environment, said at the CISA forum last month that 228 steel enterprises in China have upgraded to ultra-low emission standards, of which 82 steel enterprises with annual capacity of 330 million tonnes are under supervision and evaluation.