< Demand recovery and tight supply push China's steel prices to new highs(2)
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Demand recovery and tight supply push China's steel prices to new highs(2)


In December 2020, the Ministry of Industry and Information Technology of China announced plans to reduce crude steel production in 2021. This policy is part of China's road to become "carbon neutral" by 2060, which may result in a 30% reduction in output by the end of 2021. -50%.

As commodity prices soared in May, regulators have announced that they will implement stricter production restrictions while curbing speculative purchases in the steel and iron ore markets.

China began to cancel export tax rebates for some steel products in early May, which may reduce the level of Chinese steel exports. These measures are an effort to reduce the total energy consumption of China's steel industry. At the same time, they may also boost domestic steel supply and ease current demand pressures.

China's National Development and Reform Commission recently announced that it will continue to seek diversification of iron ore supply. Currently, Australia's iron ore imports account for 60% of China's total iron ore imports. Specific measures include increasing domestic scrap steel recycling, and the goal is to use scrap steel to produce 30% of crude steel by 2025. This may require a major change in China's current steel production structure. In 2019, China's electric furnace steel will account for about 11%. Electric furnace steel production usually uses large amounts of scrap steel as raw materials. In addition, given that many blast furnaces in China have recently been put into operation, China may explore ways to increase the amount of scrap in the blast furnace-converter process. However, in the short term, the current global shortage of scrap will also restrict the use of scrap in China.

China will also seek to expand domestic iron ore production capacity and ensure access to more overseas iron ore resources. Compared with major iron ore suppliers such as Australia and Brazil, China's iron ore grades are relatively low and the marginal cost is higher. Therefore, China's efforts may be concentrated in overseas markets. The proposed Guinea Simandou iron ore development project has attracted much attention and is regarded as a key element of China's future supply chain, although the mine's production will still take several years. The Simandou iron mine has a potential production capacity of 200 million tons per year, which is approximately 15%-20% of the current output in the Pilbara region of Western Australia.

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