China’s steel mills can meet their goal of reducing carbon emissions if the industry is willing to accept the high cost of improving the efficiency of production, according to analysts.
As the largest crude steel producer and consumer, China’s steel accounts for about 15 per cent of the country’s carbon emissions and over 60 per cent of the global steel industry’s emissions. Steel companies in the country are under pressure now Beijing has fully committed to achieving carbon neutrality by 2050.
“This [slashing carbon emissions] is a must for the steel industry,” said Ma Jun, director of the Beijing-based Institute of Public and Environmental Affairs. “For an industry with such sizable emission, it needs to make a move right now.”
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The country is carving out a plan for the steel industry – the largest carbon emitter of all the manufacturing categories – to hit peak carbon emissions within four years and reduce them by 30 per cent by 2030, said Li Xinchuang, president and chief engineer at the China Metallurgical Industry Planning and Research Institute, during an industrial conference last week.
The industry will need to be more efficient to save energy, optimise operational processes and apply low carbon technologies, Li was quoted as saying by the state-owned Economic Observer.
Analysts said the country will need to overhaul its steel production line to address the decarbonisation challenge, by cutting down the long process, deploying more electric arc furnaces (EAFs) and using high-quality scrap as it will emit less carbon and create high quality products.
“They need to go for the higher-end products and be more eco-friendly and responsible,” said Li Hongmei, a senior analyst at Mysteel Global.
Currently, 90 per cent of China’s steelmaking relies on coking coal blast furnaces, while carbon-friendly EAF is more compatible with scrap steel. In January, imports of scrap steel were allowed to resume after a two-year ban designed to cool its prices as an alternative to iron ore.
“The steel industry is consuming much more energy than others, so it will need to upgrade new capacity that consumes less and renewable energy,” said Ma.
China churned out a record 1.05 billion tonnes of crude steel in 2020, with demand boosted by Beijing’s stimulus measures for infrastructure such as bridges, roads and buildings during the pandemic.
Demand for steel in China is likely to remain high this year. However, in the long run, the country’s output will slow down as its economic expansion relies more on the services sector, and demand for steel will eventually drop in the next 10 years, said Li.
As part of efforts to ensure the industry’s 2025 peak-carbon goal is reached, the country has stressed its desire to reduce both capacity and output this year. It has launched a nationwide investigation to make sure steel capacity cuts ordered in 2016 to eliminate outdated and excess capacity are actually being carried out, industry regulators including the National Development and Reform Commission (NDRC) and the Ministry of Industry Information Technology (MIIT) said on Thursday.
China has cut 150 million tonnes of capacity and 140 million tonnes of low-grade steel in the last five years. The authorities will focus on consolidating the industry by cutting crude steel output at outdated mills with poor environmental records and ensure this year’s production is lower than last year’s.
As the largest steel producer in the world, Shanghai-based China Baowu Steel Group said it will reach carbon emission peak by 2023 and will reduce emissions by 30 per cent before 2035. The steel maker is also investing in innovative technologies to ramp up production. It has formed a five-year partnership with Anglo-Australian miner BHP to invest up to US$35 million in greenhouse gas emissions research, including the deployment of carbon capture and hydrogen injection in the blast furnace.
Innovative technologies have been developed and tested to eliminate the carbon footprint by using hydrogen or by capturing and storing the carbon during production. Still, the high costs have prevented the technologies being used on an industrial scale. Analysts said the situation would change in the future.
“Among other things, the industry is likely going to have to rely on technologies that are not fully mature or entirely commercially viable at the moment. This implies a bit of a bet on the part of the government and the industry, but if it pays off it could actually help commercialise these technologies,” said Ilaria Mazzocco, senior research associate at the Paulson Institute.
Additional reporting by Eric Ng.
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