Jiang Li, Chief Analyst, China Iron and Steel Association

　　 The operation of the steel industry in the first half of 2021

　　 From the perspective of domestic supply, my country's crude steel output increased sharply in the first half of the year, and the incremental contribution of iron mainly came from scrap steel. In the first half of the year, China's crude steel output reached 563 million tons, an increase of 59.41 million tons or 11.8% year-on-year; while the output of pig iron was 456 million tons, an increase of 17.43 million tons or 4.0% year-on-year. In particular, China's pig iron output grew negatively for two consecutive months from May to June, and crude steel output fell for two consecutive months. According to the output statistics of the Bureau of Statistics, the increase in pig iron output contributed less than 30% of the increase in crude steel output in the first half of the year. This shows that most of the increase in crude steel comes from scrap, and the base of scrap consumption during the epidemic last year was low. In addition, the high ore price in the first half of this year and the obvious advantage of scrap cost in the first half of this year resulted in a significant increase in scrap consumption in the first half of this year.

　　 From the perspective of foreign supply, overseas crude steel output hit a new high, and pig iron output has reached a "bottleneck." Although overseas crude steel production reached 440 million tons in the first half of the year, an increase of 66.86 million tons or 18.9% year-on-year, which is already higher than the level before the epidemic, the production of pig iron has not yet recovered to the level before the epidemic, and its annual output is far from the epidemic. There is still a gap of about 20 million tons. In addition to China, there are still a large number of idle or shut-down blast furnace production capacity in the world. The high carbon cost in Europe due to ESG, the shrinking domestic demand in Japan, and the political and military conflicts in Ukraine, Venezuela and other countries are preventing the restarting of blast furnaces or causing permanent blast furnaces. The reason for the shutdown. Overseas steel production capacity has now been fully utilized, and the increase in the second half of the year is limited. It is estimated that in the second half of the year, overseas crude steel production will increase by 40-50 million tons year-on-year, and there will be an increase of approximately 108 million tons-121 million tons for the whole year.

From the perspective of demand, in the first half of the year, domestic demand growth beyond expectations was mainly driven by manufacturing exports and real estate investment; the financial subsidies of major overseas economies in response to the epidemic have greatly increased household income and stimulated demand for real estate and consumer durables. , The mismatch of supply and demand in overseas manufacturing has stimulated exports from major manufacturing countries such as China. In addition, overseas replenishment of inventories and the expansion of global trade have led to a substantial increase in overseas demand. From January to July, my country imported 8.4 million tons of steel, down 15.6% year-on-year; exported 43.05 million tons of steel, up 30.9% year-on-year. Due to the gradual narrowing of the domestic and international price gap and the adjustment of the two export tax rebate policies, it is expected that my country's steel exports will decline month by month in the second half of the year.

In general, if we do not consider changes in inventories and assume that supply equals demand, global crude steel supply and demand will increase by 126 million tons in the first half of the year, which has exceeded the World Steel Association’s forecast of 102 million tons for the whole year. The strong recovery of supply and demand exceeds Contrary to original expectations, the global black industry chain shows a trend that overseas is stronger than domestic, and raw materials are stronger than steel. Although the profits of China's steel industry recovered, the profits of China Steel Association members in the first half of the year were 220 billion yuan. Bloomberg estimated that the profits of the three major mines in the first half of this year were US$65.9 billion, exceeding 400 billion yuan, far exceeding the profits of the entire Chinese steel industry.

Key points to be paid attention to in the operation of the industry in the second half of the year

　　In the second half of the year, the focus of the operation of China's steel industry is mainly as follows:

　　 First of all, on the supply side, the “look back” of steel capacity reduction and the reduction of crude steel output in 2021 will be the focus.

　　 "Looking back" on iron and steel capacity reduction will focus on the inspection of the implementation of steel capacity reduction work and the implementation of rectification in all relevant regions since 2016. The first is to resolve the overcapacity of iron and steel, and to combat the shutdown and withdrawal of smelting equipment involved in the "district steel"; the second is the construction and commissioning of steel smelting projects; the third is the implementation of rectification of problems found in previous inspections; the fourth is the inspection of reporting clues and The situation of rectification; fifth is the work of the leading group for resolving excess steel production capacity; sixth is the work of reducing crude steel output in 2021. In 2021, the reduction of crude steel output will be based on the consolidation and improvement of iron and steel production capacity, adhere to the principles of marketization and rule of law, and focus on reducing the crude steel output of enterprises with poor environmental performance, high energy consumption, and relatively backward technology and equipment. , To avoid “one size fits all” and ensure that the country’s crude steel output in 2021 will fall year-on-year.

　　Secondly, in terms of demand, in addition to seasonal changes and preparations for the Winter Olympics, the impact of relevant domestic and foreign policies on the steel industry should not be underestimated. Domestically, real estate is developing steadily under the policy guidance of adhering to the "three stability" goals (stabilizing land prices, stabilizing housing prices, and stabilizing expectations). Infrastructure construction is subject to the accelerated issuance of special bonds and the constraints of new performance management measures. There is limited room for growth. External demand and construction The industry-based manufacturing industry is facing downward pressure on demand, and the automotive industry will only see greater growth in demand if chip issues are alleviated. In foreign countries, the decline of US fiscal subsidies and the normalization of monetary policy, coupled with the end of the replenishment cycle in overseas markets, will reduce the external demand that drove the high growth of China's steel demand in the first half of the year, which will affect China's direct and indirect steel exports.

　　 Finally, in terms of raw materials, the second half of the year should focus on the shipment of overseas mines and the commissioning of new coke production capacity.

　　 The outlook of the steel industry under the "dual carbon" goal

"By the end of this century, the global average temperature will be controlled within 2 degrees Celsius compared with the pre-industrial period (20% reduction in CO2 emissions in 2030 compared to 2010, and net zero emissions will be achieved by 2075); efforts will be made to limit the temperature rise within 1.5 degrees Celsius (CO2 emissions in 2030 will be reduced by 45% compared to 2010, and net zero emissions will be achieved in 2050)" This is the Paris Agreement adopted at the Paris Climate Change Conference on December 12, 2015 and signed in New York on April 22, 2016. "Long-term goals.

　　 Up to now, 127 countries, including China, have committed to carbon neutrality. These countries account for 50% of global greenhouse gas emissions and account for more than 40% of the global economy. The European Union, the United Kingdom, Japan, South Korea and other regions have put forward the "Green New Deal". Biden has put climate change at the priority of domestic and foreign policies, and more developing countries have defined low-carbon transition goals. On September 22, 2020, General Secretary Xi Jinping promised in his important speech at the 75th United Nations General Assembly that China will strive to achieve carbon peaks by 2030 and carbon neutrality by 2060.

　　Carbon neutrality has a profound impact on the global steel industry

　　 Carbon neutrality will impact the global steel industry in the following five aspects:

　　 1. The total demand for steel is limited and the demand structure changes. In October 2020, the "World Energy Technology Outlook 2020-Steel Technology Roadmap" of the IEA (International Energy Agency) was released. The Baseline Scenario Forecast (STEPS) is based on the current policies announced by various countries. It is expected that the global steel demand in 2050 will be On the basis of 1.85 billion tons in 2019, an increase of 40%, about 700 million tons to 2.55 billion tons. However, according to the Sustainable Development Scenario (SDS), in order to achieve the temperature control targets of the Paris Agreement, the carbon emissions of the steel industry must be reduced by at least 50%, and global steel demand can only increase by 10%, or about 180 million tons by 2050. To 2.03 billion tons. Therefore, the IEA recommends seven ways to reduce the total consumption of steel, especially to extend the service life of the building and optimize the design of the building.

　　 2. The total carbon emissions of the steel industry in 2050 need to be reduced by 55% compared to 2019, and the emission intensity needs to be reduced by 60%. According to the IEA's forecast (STEPS), even taking into account the increase in the proportion of electric furnace steel caused by the increase in scrap storage, the global steel industry's carbon emissions will increase from 2.6 billion tons in 2019 to 2.7 billion tons by 2050, an increase of approximately 7%, the carbon emission intensity dropped by only 21%. However, in order to achieve the 2.0°C temperature control target of the Paris Agreement, the total direct carbon emissions of the global steel industry in 2050 will be reduced by 55% compared to 2019. Therefore, the carbon emission intensity of steel production must be reduced by 60% by 2050, or tons. Steel carbon emissions have dropped from the current 1.4 tons to 0.6 tons.

　　 3. Realizing emission reduction targets requires huge investment. At the 2021 Beijing Summit of the Global Wealth Management Forum held on July 24, China’s special envoy for climate change affairs Xie Zhenhua revealed: “If China achieves its goal of carbon neutrality, it will generally need 136 trillion yuan of investment.” According to “China’s long-term low-carbon development” "Study on Strategy and Transformation Path" estimates that by 2050, the cumulative amount of new investment needed for China to achieve a 1.5-degree goal-oriented transformation path is about 138 trillion yuan. Proportionally, in order to achieve carbon neutrality, China's steel industry needs to invest a huge investment of about 20 trillion yuan. It is simply estimated that the annual investment is 500 billion yuan, and the annual investment of 500 yuan per ton of steel. According to the IEA’s “Steel Technology Roadmap”, reductions in emissions include increasing the use of scrap/electric furnaces and changing the energy structure: the proportion of global traditional blast furnace-converter processes needs to be reduced from 70% in 2019 to 30% in 2050. The proportion of reduction + converter + CCUS needs to be increased to 10%, the proportion of electric furnace steel using scrap steel as raw material needs to be increased from 22% in 2019 to 38%, and the proportion of electric furnace steel using hydrogen reduction DRI as raw material will reach 8%. Changing the energy structure requires huge investment, which will greatly increase the cost of steel.

　　 Fourth, steel trade will face traditional trade barriers + green trade barriers. In the past, countries/regions around the world have adopted a large number of trade protection measures to protect the domestic steel industry. In the future, with the levy of the EU carbon border adjustment tax and the imitation of other countries, traditional trade barriers and new green trade barriers will make the regional market more closed. International trade will become more difficult. In order to achieve climate goals and protect EU industries, the EU has launched a carbon border adjustment mechanism CBAM proposal. It is expected that a carbon border tax will be implemented around 2023, which will encourage the EU steel industry to make breakthroughs in metallurgical technology and protect it from carbon leakage. Role. The EU Emission Trading System (EUETS) is the world’s first trading system aimed at reducing greenhouse gas emissions in energy-intensive industries. In recent years, the EU’s free carbon emission allowances have been further reduced, and the carbon emissions market price has slowly risen from the very low level at the beginning. The price of carbon has now risen to more than 50 Euros/ton. Based on the difference in carbon emission intensity between China and the EU steel industry, if the carbon price rises to US$100/ton, China’s exports of steel products to the EU will result in additional carbon border taxes. The cost may be as high as US$100/ton-US$150/ton.

　　 5. Green procurement pressure from the downstream of the supply chain. In the process of achieving the dual-carbon goal, not only is the steel industry facing the challenge of net zero emissions, more and more downstream steel customers are requesting steel companies to provide green low-carbon steel in the process of transitioning to green and low-carbon to reduce the overall value The carbon footprint on the chain, which means that greenhouse gas emissions during the product life cycle (including the production, use, and scrap phases) will become an increasingly important factor in product design and the procurement of raw materials such as steel, especially in energy, automobiles, and Construction field. In March 2021, Shell ordered a batch of zero-carbon-emission steel pipes from Baowu, which became China's first carbon-neutral steel product transaction. Beginning in May 2021, European car companies and steel mills will jointly carry out carbon-neutral cooperation. For example, Volvo will use SSAB hydrogen smelting steel to manufacture the first batch of concept cars from this year. Small-scale mass production will be carried out in 2022, and then gradually Upgrade to mass production. The German steelmaker Salzgitter recently disclosed that it will deliver green steel products that reduce carbon dioxide emissions by more than 66% to Mercedes-Benz's four German plants before the end of this year.

　　 Therefore, facing the international carbon neutral goal, whoever realizes the green and low-carbon transition first will be able to take the initiative in the future competition.

　　To achieve the dual carbon goal, China's steel industry has a long way to go

In order to achieve the goals set by the Paris Agreement, the international steel industry and companies have set their own schedules: The European Steel Federation proposes that by 2030, the European steel industry’s carbon emissions will be reduced by 30% compared to 2018, and by 2050 the equivalent This is a decrease of 80%-95% compared to 1990. The Japan Iron and Steel Alliance proposes that the Japanese steel industry will achieve zero greenhouse gas emissions from the ironmaking process by 2050, reduce carbon emissions by 30%, and achieve "zero carbon steel" production by 2100. The South Korean steel industry proposes to reduce carbon emissions from the initial 135.7 million tons to 127.1 million tons by 2030.

On March 19, 2021, the National Development and Reform Commission held a seminar to study and formulate carbon peak plans for industries such as steel, non-ferrous metals, and building materials. On May 18, 2021, the National Development and Reform Commission's press conference introduced that it is stepping up the preparation of an action plan for peaking carbon emissions by 2030, and studying and formulating petrochemical, chemical, power, steel, non-ferrous metals, building materials, construction, transportation and other industries and fields to peak carbon emissions. The implementation plan further clarifies the timetable, road map, and construction drawing of carbon peaking and carbon neutralization.

　　 China is a major carbon emitter in the world, and steel is one of the major carbon emitters. According to GlobalCarbonProject statistics, in 2019, the total global CO2 emissions related to energy and cement were about 36.4 billion tons, and China's 10.17 billion tons, accounting for about 28%, surpassing the sum of the United States, Europe and Japan. According to data from the Ministry of Ecology and Environment, in 2018, the emissions of particulate matter, sulfur dioxide, and nitrogen oxides in China's iron and steel industry were about 1.636 million tons, 683,000 tons, and 929,000 tons, respectively, ranking first among all industrial sectors; carbon emissions were only lower than the power industry , In second place. Therefore, China's steel industry has a long way to go to achieve the dual carbon goal.

　　 At the same time, my country has also issued a steel industry policy to actively promote the green, low-carbon, and high-quality development of the steel industry.

　　 One is to improve the high-quality development level of the steel industry. The National Development and Reform Commission stated that during the "14th Five-Year Plan" period, it will focus on promoting the adjustment of the steel industry structure from five aspects: strictly enforce the prohibition of new production capacity, promote low-carbon and green development of the steel industry, promote the merger and reorganization of the steel industry, and encourage the steel industry Optimize the layout and improve the development quality level of the steel industry. The "Implementation Measures for Capacity Replacement in the Iron and Steel Industry" of the Ministry of Industry and Information Technology came into effect on June 1 this year. The revised "Implementation Measures" clarified that it is strictly forbidden to increase the total steel production capacity in key areas for air pollution control; provinces (regions) that have not completed the total steel production capacity control target , City), shall not accept steel production capacity transferred from other regions; the Yangtze River Economic Belt region is prohibited from building or expanding steel smelting projects outside the compliance park; the replacement ratio of key areas for air pollution prevention and control is not less than 1.5:1, and the replacement ratio in other regions is not low At 1.25:1. The Ministry of Industry and Information Technology's "Guiding Opinions on Promoting the High-quality Development of the Iron and Steel Industry (Draft for Solicitation of Comments)" proposed that by 2025, the iron and steel industry will basically have a reasonable industrial layout, advanced technology and equipment, outstanding quality brands, high levels of intelligence, and strong global competitiveness. , Green, low-carbon and sustainable development pattern.

　　 The second is to reduce pollution and carbon, and promote high-quality ultra-low emission transformation of the entire industry. In April 2019, the "Opinions on Promoting the Implementation of Ultra-Low Emissions in the Iron and Steel Industry" issued by five ministries and commissions including the Ministry of Ecology and Environment pointed out that in principle, new steel projects nationwide (including relocation) must reach ultra-low emission levels. The opinion pointed out that before the end of 2020, the ultra-low emission transformation of iron and steel enterprises in key regions has made significant progress, and strives to complete the transformation of about 60% of the production capacity. Before the end of 2025, the ultra-low emission transformation of iron and steel enterprises in key regions will be basically completed, and the country will strive to complete the transformation of more than 80% of the production capacity. Up to now, a total of 237 enterprises across the country have completed or are implementing ultra-low emission transformations of approximately 650 million tons of crude steel. Among them, 14 steel companies including Shougang Qiangang, Shougang Jingtang, Taigang Group and other 14 steel companies have produced approximately 95 million tons of crude steel. Complete the whole process transformation and evaluation and monitoring.

　　 The third is mergers and reorganizations to increase industry concentration. On June 17, 2021, the National Development and Reform Commission stated at a regular press conference: During the "14th Five-Year Plan" period, it will focus on promoting the adjustment of the steel industry structure from five aspects. The first is to strictly enforce regulations prohibiting new production capacity. The second is to promote the low-carbon and green development of the steel industry. The third is to promote the merger and reorganization of the steel industry. The fourth is to encourage the steel industry to optimize its layout. The fifth is to improve the development quality level of the steel industry. The “Guiding Opinions on Promoting the High-Quality Development of the Iron and Steel Industry (Draft for Comment)” issued by the Ministry of Industry and Information Technology proposes: to promote the implementation of mergers and reorganizations of leading enterprises in the industry, to form and build a number of world-class super-large steel enterprise groups, relying on industry-leading enterprises, in stainless steel , Special steel, seamless steel pipe, cast pipe and other subdivisions to cultivate 1-2 world-class professional leading enterprises respectively. Promote the merger and reorganization of iron and steel enterprises in the region, fundamentally change the “small fragmentation” situation of the iron and steel industry in some areas, and increase the industrial concentration. In 2025, CR5 will reach 40% and CR10 will reach 60%.

With the gradual integration of carbon emissions from the steel industry into the national carbon trading market, steel companies that value low-carbon emission reductions in the future will benefit from the carbon trading market, thereby gaining more advantages in reducing carbon costs, which is conducive to the merger and reorganization of the steel industry. Unfold.

Under the dual carbon goal, the future outlook of the steel industry is as follows:

　　 One is the short-term outlook.

Global steel demand rebounded sharply in the first half of the year, and global monetary policy has passed the most accommodative stage. Although the global economy will grow simultaneously in the second half of the year, as the US fiscal subsidies decline and consumers revert to the service industry, global manufacturing activities are expected to gradually In the second half of the year, overseas steel demand will continue to maintain a relatively high growth rate year-on-year on the basis of last year's low base, and China's steel demand is facing downside risks.

　　 Overseas steel production capacity has been fully utilized, and the increase in the second half of the year is limited. China's steel supply will be affected by the inspection of steel production capacity reduction and the policy of reducing crude steel production. Steel exports are affected by the tax rebate policy and fluctuate greatly.

　　 The second is the medium and long-term outlook.

Carbon neutrality has a profound impact on the global steel industry. In order to achieve the temperature control goals of the Paris Agreement, the IEA research results believe that the total global steel demand will be limited and the demand structure will undergo major changes. At the same time, the global steel industry’s total carbon emissions and The carbon emission intensity must be greatly reduced to meet the emission reduction requirements of the Paris Agreement.

There are differences in the emission reduction progress of various countries. The steel production capacity of developed countries and regions will be limited. Green trade barriers such as the EU carbon border adjustment tax will be emulated. In the future, China's steel exports will face domestic export policies and green trade barriers of export destination countries. Dual constraints, and the continuous expansion of steel production capacity in emerging markets, will gradually become the main source of China's steel semi-finished products and steel imports.

　　 Under the guidance of the dual-carbon goal, China's steel industry can no longer rely on increasing production capacity to increase production. It needs to increase concentration through mergers and reorganizations, and achieve high-quality development by controlling production capacity and reducing production.

　　In order to achieve emission reduction targets, the world, including China's steel industry, must invest heavily in low-carbon emission reduction transformations in the future. This will not only restrict global steel production capacity in the future, but also increase the global steel industry's operating costs and steel production costs.