China is facing a high profile test of its commitment to curbing industrial pollution after steel output surged in the first half of the year to well beyond its target of capping production at 2020's peak, sending emissions to new highs.
China has ambitious pollution-reduction plans: capping emissions by 2030, becoming carbon neutral by 2060, and shutting outdated smokestack capacity - including in steel.Its top steelmaker Baowu Group - also the world's biggest - said steel output cuts are now "a political issue with no room for bargaining".
Less well-established steel producers dialled up output even more in the first half of 2021. The southern Guangxi autonomous region raised production by 88% to nearly 20 million tonnes - around the same as Vietnam produced in all of 2020 - due to new plants.Other provinces including Yunnan and Guangdong lifted output by double digits in the first six months, ensuring that southern China alone offset the decline in the country's core steel hubs.
Major steelmaking regions including Hebei, Jiangsu, Shandong and Fujian have received orders to cut output for the remainder of the year.However, with overall consumption firm, falling output raises concerns about a potential supply crunch later in 2021. But with global demand set to remain robust due to easing pandemic restrictions, rigid output controls could suggest continued margin pressure on downstream users."Falling steel supply in H2 is very likely to happen," said Zhuo Guiqiu, analyst with Jinrui Capital. "So, expect the conflict between falling supply and recovering demand will drive steel prices to run at high levels.
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