China’s position on reduction environmental pollution is very serious. Unprecedented pressure from China has hit the iron ore sector in recent months. The recent call by the Chinese Politburo to reform its carbon policy, which mainly targets China’s coal and iron ore industries, is expected to drastically reduce production growth in the two sectors. Forecasts indicate that in the second half of this year, we will feel a significant decrease in the inventories of these two minerals around the world. Currently, the continuation of these pressures by the Chinese government has kept iron ore prices extremely low. We will discuss this issue in more detail below. Please be with Artan Press.
*** Serious decision of Chinese government agencies to control environmental pollution
At the July 30 meeting, the China Institute for Strategic Planning said it was important to first determine the peak path of carbon emissions before breaking old patterns. The announcement led to a drop in iron ore prices in China’s steel market on the pretext of renewed pressure from China to reduce environmental pollution on August 2. The biggest October rebar and hot rolling contracts on the Shanghai Stock Exchange fell 5.6% and 5.7% on the day to 5,144 yuan ($ 838 per ton) and 5780 yuan per ton, respectively.
However, market sources said the decline in Chinese steel production was not a “campaign-style carbon cut”. Most likely, China is not just looking to reduce environmental pollution and decarbonize nature from this game. The cryptic economic goals lie behind China’s policy.
*** Dual perception of the Chinese government’s political stance on pollution reduction
A Chinese government spokesman, Artan Press, was quoted as saying on July 31 about the “campaign-style carbon reduction” that some local governments’ aggressive measures to reduce carbon emissions were unplanned and could put pressure on Emission reduction costs and negative impact on China. This has hampered the economic development of some Chinese states that were heavily dependent on the iron ore economy. China has imposed tax subsidies on these companies for carbon offenses. However, this situation will not reduce the economic risk of the affected states.
*** Elimination of Chinese export discounts under the pretext of pollution reduction environmental
Despite all the shortcomings and challenges created by China in the steel supply chain, the central government has begun to demand a reduction in steel production, and China seems to be very serious about this. The decision was accompanied by the removal of the scrap import tax in April and the removal of steel export rebates in April and July. In this regard, a source said that all policy changes are well planned and aimed at reducing iron ore prices by reducing steel production and increasing scrap imports.
Iron ore seems to have fallen victim to environmental pollution and somehow all the risks have been addressed. The fact that China has attacked this substance is debatable. Because fossil fuels are the most important source of pollution for which no plan has been developed.
*** Reflection of reduced steel production in analytical journals in the field of steel
The decline in steel production, which began in July, played an important role in lowering iron ore prices and strengthening steel margins in the process. According to S&P Global Platts Analytics, China and HRC domestic rebar sales profit margins increased from $ 76 and $ 70 per million on July 1 to $ 53 million and $ 109 / ton on July 30, respectively. During this period, the Platts index for this product fell by $ 40.9 / ton to $ 180.5 / ton, and it seems that the continued decline in iron ore prices due to the reduction of environmental pollution has long overshadowed the market.
*** Reduction in iron ore prices; China’s priority in pollution reduction environmental
Some sources said that controlling the price of iron ore is still a priority, indicating that the decline in steel production will continue in the second half of 2021 and even until 2022. However, the sources of annual production decline for 2021 may be adjusted to meet steel demand. Of course, it should be noted that this adjustment of steel production under the pretext of reducing environmental pollution will certainly not be justified from one place to another.
The Chinese government has ordered steel mills to keep annual steel production in 2020 at 2020 levels. That China will pursue its economic and infrastructure development by controlling steel prices is similar to dumping in other areas. China is very good at this game.
*** A sharp decline in China’s crude steel production
According to the National Bureau of Statistics, China’s crude steel production in July-December should fall by 59 million tons, or 11 percent per year, to 502 million tons. Some market sources say China’s domestic demand will also decline in the second half of the year. But this reduction can be limited and controlled. As the government begins to increase consumption, it is also expected to stop accelerating the advancement of infrastructure goals.
The Chinese government, which has taken control of the market today under the pretext of reducing environmental pollution, will definitely back down immediately. Provided that the cost of the opportunity to retreat for this country has reached an acceptable level.
*** The role of the Chinese government in the future growth of steel prices
Elimination of Chinese steel export discounts In the current situation, it is unlikely to curb Chinese steel exports in the short term. Instead, it could even lead to a global increase in some steel products. As a result, if China successfully maintains its annual production of 2021 at the level projected in 2020, at least 20 million to 30 million tons in the domestic market in the second half of the year will be unanswered will remain.
It remains to be seen how long the Chinese government will support the plan to reduce environmental pollution. “The decline in steel production will continue, but there is uncertainty about the timing [of the reductions] and the extent to which there is no consensus on it,” a source said.
*** Electricity shortages and environmental pollution challenges in the steel industry
Due to the shortage of electricity along with hot weather in China, 15 steel mills, most of which are arc furnace steelmakers, have cut steel production since late July. This, which leads to a total reduction in crude steel production of about 27,000 tons per day, has provided an opportunity to strengthen the plan to reduce environmental pollution.
While it remains to be seen how long the electricity shortage will last, market sources expect the power outage to remain strong until August. Some sources say that China’s total production of cast iron and crude steel in July fell below June production and averaged last year. But most sources expect construction sites and manufacturing plants to resume demand in mid or late August. This could increase China’s production of cast iron and crude steel again.
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