The recent call by the Chinese Politburo for adjustments to the “carbon reduction” will mainly target the Chinese coal-mining industry, while the nationwide cut in steel production is likely to be implemented in the second half of 2021 due to price caps on iron ore. Market sources stated that this was the main reason for this.
China’s supreme planning authority at a meeting on July 30 said it was important to first establish a path to peak carbon emissions before breaking old models.
This announcement led to a drop in the Chinese steel futures market. On August 2, the most actively traded October rebar and hot rolled coil contracts on the Shanghai Futures Exchange fell 5.6% and 5.7% over the day to RMB 5,414 /t ($ 838 /t) and RMB 5,780 /t respectively.
However, market sources said the cut in steel production in China was not a “campaign-style carbon cut.”
Xinhua News Agency, the mouthpiece of the Chinese government, announced on July 31 “campaign-style carbon cuts” that aggressive actions by some local authorities to cut carbon emissions lack overall planning, which could put pressure on the cost of emission reductions and negatively impact China’s policies. … economic development.
However, market sources said that the request to cut steel production was initiated by the central government, the decision came in conjunction with the abolition of the scrap import tax in April and the lifting of discounts on steel exports in April and July.
All of the policy changes were well planned to contain iron ore prices by reducing steel production and increasing scrap imports, the source said.
The contraction in steel production, which began in July, played an important role in lowering iron ore prices and increasing the profitability of steel.
Containing iron ore prices remains a priority, indicating that steel production cuts are expected to continue in the second half of 2021 and even into 2022, some sources said. However, the annual production cutback plan for 2021 could be adjusted to meet the demand for steel, the sources added.