China’s vast steel industry is in the midst of a conflict between economic growth and the green agenda that leads to greater challenges as President Tap Can Binh tries to clean up the world’s top carbon source.
The government is pushing steel production to drop from a record more than 1 billion tons, in a campaign kicked off by Tap’s pledge to bring a carbon-neutral economy by 2060. But the moves the initial attempt to tighten steelmakers raised prices and caused a headache for policymakers worried about rising inflation.
The conflict between priorities is evident in Premier Ly Khac Cuong’s recent call for stronger control of commodity markets. His comments follow data showing production prices rose in March at the fastest speed since July 2018, a trend that could hamper an economy’s recovery.
According to people familiar with the matter, top executives of industrial materials companies, including steelmakers, have been convened to government meetings to discuss reasoning why prices rise and how to respond. Steel mills have seen a spike in profits and the biggest company, Baoshan Iron & Steel Co., has seen its Shanghai-listed shares rise nearly 40% this year while the benchmark index reduced.
“With steel, they cannot blame anyone but themselves,” said Atilla Widnell, chief executive officer of Navigate Commodities, by phone from Singapore. Trying to keep production under control coupled with stimulated demand inevitably means much higher prices, he said.
Steel coils in China, used in everything from cars to buildings, are the most expensive since 2008. Aluminum, also the subject of carbon policy, has reached decades-old highs. Strong demand plays a key role in supply cuts, as China’s economy recovers from a pandemic heavily dependent on commodity-intensive sectors such as construction.
Letting inflation overheat is a risk to the economy as it will reduce demand for products or incite authorities to introduce restrictions on financial and monetary measures to promote growth.
The global concern is clearly steel rising too far after countries plan to escape the pandemic and China does not subdivide its producer price index by specific sectors. But steelmaking is so important to its economy, the use of large numbers and the price impact of curbing supply shows how cautious governments will have to go when they are restructuring of important but dirty industries.
Carbon’ speed
China produces more than half of the world’s steel, and the sector has long been targeted by authorities for persistent pollution. But it is no longer the haze that attracts the government’s attention. The industry is also responsible for about 15% of the carbon that China emits to the atmosphere every year.
Zhiwei Zhang, Chief Economist of Pinpoint Asset Management Ltd. “The neutralization initiative will put constant pressure on production prices in the coming years,” said in Hong Kong. “The price effect may appear first and foremost in the common questions like high-carbon steel, but it has the potential to spread to more produced items due to the overall shift from coal to energy. new”.
China has ordered a cut to Tangshan’s key steel-making hub in the north of the country and has vowed to test the country nationwide to make sure the regions are not cut in capacity. Tangshan’s crackdown is likely to be repeated across the country amid “vigorous enforcement of China’s supply cuts,” Citigroup Inc.’s Tracy Liao indicated in an email note.
Prime Minister Li’s comments on inflation do not provide concrete measures to combat higher commodity prices. The government is considering adjusting taxes to bring in more steel overseas and make up any shortages in the country. But that is complicated by the very strong recovery of the global steel market.
It leaves policymakers a puzzle that may not be solved. “How can they cut production of steel?” Navigate’s Widnell said: “The answer I don’t think is possible.”
Information resource: Satthep.net
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