Business & Investment

China has to choose between inflation and pollution from steel

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(Bloomberg) – vast iron and steel sector in China, in which Xi Jinping president is trying to clean up carbon emissions source of the world’s top, is a scene of confrontation between the growth and the green agenda, shows the broader challenges ..

The government is calling for steel production to be reduced from more than a billion tonnes in a campaign inspired by Xi’s promise to achieve a carbon-neutral economy by 2060. Policy makers suffering from a surge in inflation.

The conflict of priorities was also evident in Prime Minister Li Keqiang’s recent demand for greater control over the commodity market. His comments follow data showing that producer prices are rising in March, the fastest pace since July 2018, and this trend could hinder economic recovery.

Executives from industrial materials companies, including steel makers, have been convened at a government meeting to discuss why prices are rising and how to deal with them, according to people familiar with the matter. Steelworks are enjoying a surge in profitability, with the largest Baoshan Iron & Steel rising nearly 40% in Shanghai-listed stocks this year and the benchmark index declining.


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“In the case of steel, they have no one else to take responsibility,” said Atila Widner, managing director of navigating commodities, on a phone call from Singapore. He said that trying to curb production alongside stimulating demand would inevitably mean much higher prices.

Used in everything from cars to buildings, Chinese steel coils are the most expensive since 2008. Aluminum, which is also the subject of carbon policy, has reached a height of 10 years. China’s economic recovery from a pandemic relies heavily on commodity-intensive sectors such as construction, so strong demand plays a major role in reducing supply.

Overheating inflation poses a risk to the economy as it deprives the economy of demand for products and urges authorities to impose restrictions on financial and fiscal measures that drive growth.

Clearly far beyond steel is a global concern as countries seek to break out of the pandemic, and China does not categorize producer price indexes by specific sector. However, steelmaking is essential to its economy and employs huge numbers, and the price implications of supply restraints must be taken cautiously by governments in rebuilding dirty but important industries. Indicates that it should not be.

Carbon squirt

China produces more than half of the world’s steel, and this sector has long been the target of persistent pollution by authorities. But it’s no longer just chimney smog that’s getting the attention of the government. The industry is also responsible for about 15% of the carbon that China releases into the atmosphere each year.


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Pinpoint Asset Management Ltd in Hong Kong. “Carbon-neutral initiatives will put sustained pressure on producer prices over the next few years,” said Zhiwei Zhang, chief economist at. “Price impacts may first appear on regular suspects, such as carbon-intensive steel, but the general shift from coal to new energy could spread to more products. There is. “

China has ordered the reduction of major steel hubs in Tangshan, in the north of the country, and has vowed a national check to make sure the region is not ignoring capacity cuts. Citigroup’s Tracy Liao said in an email that the crackdown on Tangshan is likely to be repeated nationwide as “China’s supply cut policy is being actively enforced.”

Prime Minister Lee’s comment on inflation did not provide concrete measures to counter rising commodity prices. The government is considering tax adjustments to bring in more foreign steel and fill domestic shortages. But that is complicated by the very strong backlash of the global steel market.

It leaves a puzzle for policy makers who may not have a solution. “How can we reduce steel production?” Said Widner of Navigating. “The answer is that I don’t think they can.”

© 2021 Bloomberg LP


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China has to choose between inflation and pollution from steel China has to choose between inflation and pollution from steel

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