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China’s Tangshan city will no longer directly play a role in limiting steel output, but instead take a three-prong approach to keep the steel industry close on the decarbonization path, a development that is expected to widen across the country and will lead to reduced crude steel production in the long run, industry sources told S&P Global Platts.
Tangshan is China’s biggest steelmaking hub located in the Hebei province.
Tangshan recently released a guideline draft for the development of its steel industry in 2022 saying there will be no more direct government intervention in local steel production.
However, it will continue to strengthen efforts to implement environmental protection measures, capacity swaps and industry consolidation, a move that encourages emissions control and aligns with China’s decarbonization drive.
Not just in Tangshan but the steel industry across the country is expected to strengthen in these three areas, mill sources said.
Output to rise in short term
Although in the short term, national steel output including from Tangshan will be on the rise at least in the upcoming few months as local governments will not directly order output cuts anymore, sources said, adding this could weigh on steel prices.
Tangshan’s pig iron and crude steel output is already seen rising in the last week of February, as government requirements to cut steel production were eased after the Winter Olympics ended Feb. 20.
Some market sources expected China’s crude steel output in March to reach close to 2.90 million mt/day. While the daily output is lower than 3.03 million mt/day in March 2021, but still higher than the output levels seen in January-February 2022.
China’s daily crude steel output in February 1-10 were 15% lower on the year at 2.521 million mt/day, and in January were 11% lower on the year, at 2.635 million mt/day, according to the China Iron & Steel Association.
Long-term strategy
The development guideline for Tangshan’s steel industry encourages local steel mills to meet grade A level of environmental protection standards, so that they will be exempted from steel output cuts during smoggy weather.
However, grade A mills still must keep their annual crude steel production within levels of the previous year.
So far, there are four steel mills in Tangshan that have reached the grade A standard. They have a combined crude steel capacity of 48 million mt/day and account for about 37% of Tangshan’s total crude steel capacity.
Meanwhile, all the local steel mills are required to upgrade their blast furnaces to inner volumes of 1,000 square meters and above, and converters to 100 mt and above within 2022, through capacity swaps.
As a result of the facility upgrading, there will be 16.7 million mt/year of new crude steel production capacity to be commissioned in Tangshan in 2022, predicated on the closures of 20.4 million mt/year of existing crude steel capacity, leading to a net decrease of almost 4 million mt/year of the city’s crude steel capacity, Platts calculations based on capacity swap data showed.
If upgrading requirements get strictly implemented, Tangshan’s crude steel production may likely get adversely impacted in late 2022, as it usually takes several months for newly commissioned facilities to reach full capacity, while the old ones must be closed by the end of this year, market sources said.
Tangshan also encourages local mills to replace existing capacity with electric arc furnaces and furnaces of zero- or low-carbon emissions. These low-emission furnaces can be built of the same size of facilities that are getting replaced.
Source: Platts