China is signaling a new stance on environmental inspections and production curbs with a new policy which will see inspectors trawling the steel sectors in eight provinces.
Inspectors will visit Shanxi, Liaoning, Anhui, Jiangxi, Henan, Hunan, Guangxi and Yunan to ensure that China continues to meet environmental protection policies and reduce emissions as well as checking the performance and implementation of outpaced capacity reduction in major industries with high pollution and high energy consumption.
The inspections will start from April 6 and last for a month.
China’s Ministry of Ecology and Environment started regular environmental checks in late 2015 and finished the first round on all provinces by 2018 to improve local environment and reduce runaway industrial capacity, including those in the ferrous supply chain. It also conducted more checks on nine provinces and four state-owned companies between July 2019 and December 2020.
*** Coal, coke prices in flux
Shanxi – the top coking coal and coke-making hub in China – will be the first place to undergo inspection this time.
It is in the process of shutting down outpaced coke capacity and may face more related inspections in the following month, market sources said.
Market expectations of less coke supply gave support to domestic prices and could stop the consecutive price falls, which started in early 2021, sources said.
Some sources said that domestic metallurgical coke prices have been cut by 800 yuan ($122) per tonne in total since 2021, while major domestic coking coal brands only slipped by less than 200 yuan ($30) per tonne.
Fastmarkets’ price assessment for hard coking coal domestic China spot market, Shanxi-origin, delivered Tangshan was 1,315-1,690 yuan per tonne on March 29, down from yearly peak points of 1,475-1,840 yuan per tonne on January 25.
“According to the ratio of coking coal and coke at 1.35:1, the domestic coking coal prices [for all brands] should decrease by about 600 yuan ($91) per tonne in total following the coke price cuts,” a mill source from Shanxi said.
Other market participants, however, were cautious because the production situation in Shanxi’s coal mines is uncertain amid safety production checks on the supply side and potential weak demand from mills and coke plants.
*** Iron ore to see effects of reduced steel output
A Singapore-based trader said changes to demand and supply fundamentals and their effects on prices will depend on the investigation team’s findings.
“This year’s emission control policies are focused more on steel output and not iron ore sintering. While reduced steel output should theoretically dampen iron ore demand, spot prices will still likely track steel prices closely,” he said.
Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao was at $165.15 per tonne on Wednesday March 31, down $1.43 per tonne from $166.58 per tonne on Tuesday.
Fastmarkets’ index for iron ore 65% Fe Brazil-origin fines, cfr Qingdao was at $194.10 per tonne on Wednesday, down $0.90 per tonne from $195 per tonne on Tuesday.
One Hong Kong-based trader said iron ore prices are likely to fall if further restrictions are imposed, similar to what happened in Tangshan.
“But if steel prices are high, iron ore will follow a similar trend despite the supposedly weaker demand,” he said.
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