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Friday, 28 March 14
CHINA'S ENVIRONMENTAL MEASURES WILL NOT CURB GROWTH IN DOMESTIC STEEL PRODUCTION AND SEABORNE IRON ORE - WOOD MACKENZIE SAYS
 Steel plants in China have been targeted as a major source of the toxic smog enveloping Beijing and Shanghai. Emergency measures have been imposed on regional steelmakers with mills in Tangshan ordered to suspend at least 30% of production and idle coke batteries and sintering operations. Longer term measures include the introduction of more stringent emission controls. Wood Mackenzie notes that although this move has created market wariness for China steel production and iron ore demand, the impact on steel production will be minimal. This is because there is plenty of unused capacity within China's steel industry ready to replace any lost production, due to shut downs resulting from enforcement of the new emissions regulations. However, improving the environmental performance of Chinese steel plants will add further cost pressure to an already ailing industry. Mr Paul Gray, Principal Iron Ore Markets Analyst at Wood Mackenzie says, "The iron ore market is understandably spooked by what's going on in China due to the introduction of the environmental controls and their potential financial impact on the steel industry. This has sparked much uncertainty and speculation. This is one factor that has caused price volatility, with prices plunging to 17 month lows in recent weeks before picking up again very recently. However, during the remainder of 2014 we expect that fighting emissions will have negligible impact on total Chinese crude steel production and limited impact on iron ore demand in terms of quantity, with Chinese imports of iron ore predicted to rise by a further 90 million tonnes (Mt) in 2014 to a record 921Mt."
Dr He Ming, Steel Cost Consultant at Wood Mackenzie, adds, "Steel companies need to put emissions control measures in place. However, given that most Chinese plants are tight on capital after years of near-zero margins, they will struggle with the additional costs required to implement the necessary measures and many companies will be looking for a way to pass the cost onto consumers." To achieve emissions levels on a par with their counterparts in Japan or South Korea, most steel plants would have to invest and incur more than RMB 50-60/t (US$8.3-10/t) of additional operating cost, further eroding their already narrow margins. This comes following the announcement that the average net profit margin at steelmakers in 2013 was just over 0.64% for 86 of China Iron and Steel Association's (CISA) key steel enterprises.
If steel companies are unable to meet the new lower emissions targets, they may be forced to temporarily or even permanently shut production but Wood Mackenzie expects the targets will have more impact on small scale non-CISA steel plants. These smaller plants have outdated emissions control facilities and are estimated to have emission levels three to four times higher than their CISA counterparts. Dr He says, "Non-CISA steel plants contributed to less than 20% of China's steel production in 2013 therefore although an aggressive plan of capacity closures has been announced by the central and local governments, the scale of closures is expected to have a limited impact on a steel industry that is suffering from chronic overcapacity."
"Additionally, most of the announced closures to date have been for capacity already idled or curtailed for other reasons, with the lost production picked up by the larger steel plants. It is unlikely that we will see forced closures amongst the larger plants as this move will not reduce emissions significantly. Moreover, it will have a detrimental effect on local economies by creating large numbers of unemployed workers and unpaid debts. This is not ideal, especially since Xi Jinping's government is encouraging a market-based economy with increased domestic consumer power. Therefore we do not expect closures of the larger scale plants to be the next step enforced."
With the concept that environmental regulations will apply to each steel plant fairly, regardless of size or whether it is privately or state-owned, this would shift the entire Chinese steel industry cost curve higher and further erode margins. It is therefore likely that these incremental cost increases will be passed on to end users. Moreover, since sintering is the most polluting process within a steel plant, some plants will look to replace sinter rather than incur the additional operating costs required to meet new emissions standards. Sintering is responsible for 80%-90% of total dust and soot emissions and more than 60% of total sulfur emissions from the steel industry.
Wood Mackenzie anticipates that replacements for the sintering process will result in an increase in demand for the more expensive, higher quality and environmentally-friendly raw materials like iron ore lump and pellet; supporting higher premiums for these products. There will be a natural cap on how much capacity can be switched away from sinter to higher quality feed as the price premium will become equal to the additional cost of implementing the necessary environmental measures.
The limited impact on steel production accounts for the minimal consequences for iron ore demand. Mr Gray adds, "Of longer term significance is the seaborne market's anticipated transition as it moves towards a position of excess supply capability when Chinese demand struggles to absorb all the additional seaborne supply earmarked for the this year and next. 2014 will certainly be a transition year for iron ore but we think this is not necessarily related to China's environmental measures it's more symptomatic of rising Australian supply and slowing Chinese demand."
Dr He concludes, "Government and steel companies will need to work together to protect the industry while still gradually improving emissions. On the company-side, we expect China's larger steel plants will take alternative measures to meet environmental requirements but they will incur extra costs of implementing emissions control facilities in the longer term. On the government side, a more effective way to curb pollution is to improve monitoring methods at individual plants. This will enable the government to impose heavy fines on those with emissions beyond a well-defined threshold, while incentivising those with lesser emission levels by offering subsidies to offset extra costs incurred."
Editor’s notes:
Wood Mackenzie is the most comprehensive source of knowledge about the world’s energy and metals industries. We analyse and advise on every stage along the value chain - from discovery to delivery, and beyond - to provide clients with the commercial insight that makes them stronger. For more information visit: www.woodmac.com
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Friday, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
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- Billiton Holdings Pty Ltd - Australia
- OPG Power Generation Pvt Ltd - India
- Deloitte Consulting - India
- Posco Energy - South Korea
- Georgia Ports Authority, United States
- Indian Oil Corporation Limited
- Gujarat Mineral Development Corp Ltd - India
- CIMB Investment Bank - Malaysia
- Interocean Group of Companies - India
- Binh Thuan Hamico - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Power Finance Corporation Ltd., India
- Karaikal Port Pvt Ltd - India
- Mercuria Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Eastern Coal Council - USA
- Ministry of Finance - Indonesia
- Kumho Petrochemical, South Korea
- Petron Corporation, Philippines
- The Treasury - Australian Government
- Ministry of Mines - Canada
- Essar Steel Hazira Ltd - India
- Edison Trading Spa - Italy
- CNBM International Corporation - China
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Renaissance Capital - South Africa
- Bhushan Steel Limited - India
- Uttam Galva Steels Limited - India
- Sojitz Corporation - Japan
- Timah Investasi Mineral - Indoneisa
- Xindia Steels Limited - India
- Commonwealth Bank - Australia
- Samtan Co., Ltd - South Korea
- Mintek Dendrill Indonesia
- Merrill Lynch Commodities Europe
- Indogreen Group - Indonesia
- ASAPP Information Group - India
- South Luzon Thermal Energy Corporation
- Siam City Cement PLC, Thailand
- Grasim Industreis Ltd - India
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Borneo Indobara - Indonesia
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Price Waterhouse Coopers - Russia
- Meralco Power Generation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- PowerSource Philippines DevCo
- Madhucon Powers Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- White Energy Company Limited
- Ambuja Cements Ltd - India
- Semirara Mining Corp, Philippines
- Toyota Tsusho Corporation, Japan
- TNB Fuel Sdn Bhd - Malaysia
- The University of Queensland
- Marubeni Corporation - India
- Bukit Asam (Persero) Tbk - Indonesia
- Cement Manufacturers Association - India
- Australian Commodity Traders Exchange
- Holcim Trading Pte Ltd - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Orica Australia Pty. Ltd.
- Mjunction Services Limited - India
- Wood Mackenzie - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Salva Resources Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Pendopo Energi Batubara - Indonesia
- London Commodity Brokers - England
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Africa Commodities Group - South Africa
- Neyveli Lignite Corporation Ltd, - India
- Straits Asia Resources Limited - Singapore
- Ministry of Transport, Egypt
- Alfred C Toepfer International GmbH - Germany
- Bhatia International Limited - India
- Banpu Public Company Limited - Thailand
- Sindya Power Generating Company Private Ltd
- Coastal Gujarat Power Limited - India
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- Chamber of Mines of South Africa
- Economic Council, Georgia
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Indo Tambangraya Megah - Indonesia
- Antam Resourcindo - Indonesia
- International Coal Ventures Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Electricity Generating Authority of Thailand
- Medco Energi Mining Internasional
- IHS Mccloskey Coal Group - USA
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- Orica Mining Services - Indonesia
- Gujarat Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Bharathi Cement Corporation - India
- Bayan Resources Tbk. - Indonesia
- Global Coal Blending Company Limited - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Goldman Sachs - Singapore
- Oldendorff Carriers - Singapore
- Maheswari Brothers Coal Limited - India
- Ind-Barath Power Infra Limited - India
- GVK Power & Infra Limited - India
- Standard Chartered Bank - UAE
- Semirara Mining and Power Corporation, Philippines
- Vedanta Resources Plc - India
- Simpson Spence & Young - Indonesia
- Energy Link Ltd, New Zealand
- Anglo American - United Kingdom
- IEA Clean Coal Centre - UK
- Kohat Cement Company Ltd. - Pakistan
- Star Paper Mills Limited - India
- Singapore Mercantile Exchange
- Indonesian Coal Mining Association
- Iligan Light & Power Inc, Philippines
- Riau Bara Harum - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Aboitiz Power Corporation - Philippines
- Attock Cement Pakistan Limited
- MS Steel International - UAE
- Independent Power Producers Association of India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bangladesh Power Developement Board
- Energy Development Corp, Philippines
- Sical Logistics Limited - India
- Parliament of New Zealand
- TeaM Sual Corporation - Philippines
- Tata Chemicals Ltd - India
- Electricity Authority, New Zealand
- Tamil Nadu electricity Board
- Videocon Industries ltd - India
- The State Trading Corporation of India Ltd
- Makarim & Taira - Indonesia
- Global Green Power PLC Corporation, Philippines
- Mercator Lines Limited - India
- Port Waratah Coal Services - Australia
- Jaiprakash Power Ventures ltd
- VISA Power Limited - India
- Bukit Baiduri Energy - Indonesia
- ICICI Bank Limited - India
- Gujarat Sidhee Cement - India
- Kartika Selabumi Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Global Business Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Planning Commission, India
- Kapuas Tunggal Persada - Indonesia
- PTC India Limited - India
- Kobexindo Tractors - Indoneisa
- Meenaskhi Energy Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- SN Aboitiz Power Inc, Philippines
- Bulk Trading Sa - Switzerland
- Indian Energy Exchange, India
- Aditya Birla Group - India
- Malabar Cements Ltd - India
- Larsen & Toubro Limited - India
- Minerals Council of Australia
- European Bulk Services B.V. - Netherlands
- Jindal Steel & Power Ltd - India
- Savvy Resources Ltd - HongKong
- Kideco Jaya Agung - Indonesia
- San Jose City I Power Corp, Philippines
- Eastern Energy - Thailand
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- SMC Global Power, Philippines
- Metalloyd Limited - United Kingdom
- GMR Energy Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- Coalindo Energy - Indonesia
- Parry Sugars Refinery, India
- Trasteel International SA, Italy
- Thai Mozambique Logistica
- Romanian Commodities Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Latin American Coal - Colombia
- Bukit Makmur.PT - Indonesia
- Formosa Plastics Group - Taiwan
- Kaltim Prima Coal - Indonesia
- Central Electricity Authority - India
- Altura Mining Limited, Indonesia
- Heidelberg Cement - Germany
- Siam City Cement - Thailand
- Central Java Power - Indonesia
- Indika Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Sree Jayajothi Cements Limited - India
- Rio Tinto Coal - Australia
- Rashtriya Ispat Nigam Limited - India
- Chettinad Cement Corporation Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Therma Luzon, Inc, Philippines
- Lanco Infratech Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- SMG Consultants - Indonesia
- Ceylon Electricity Board - Sri Lanka
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