Author Archives: Sohrab Darabshaw

Rare earths have seen a surge in demand all around the world. After all, these minerals are key components of everything from solar panels to electric car batteries to defense equipment. And with Russia’s invasion of Ukraine disrupting much of the supply chain, the need for rare earths has become even more dire.

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A Rare Earths “Plan of Action”

For the first time ever, the United Kingdom (UK) Government has released a “Critical Minerals Strategy.” The policy spells out the country’s game plan for developing a more consistent, UK-based supply of rare earths. The multi-pronged strategy includes ramping up domestic production of minerals like lithium, graphite, and silicon. The UK will also conduct research and development in this field while attempting to boost reuse and recycling across the country.

The Department for Business, Energy, and Industrial Strategy (BEIS) recently posted the entire plan on its website. Some of the fine points include effort to:

• Accelerate the growth of the UK’s domestic capabilities.
• Collaborate with international partners.
• Enhance international markets to make them more responsive, transparent and responsible

Currently, the UK has pockets of mineral wealth stretching from the Scottish Highlands to Cornwall. The country also has at least some expertise in material manufacturing and refining. In recent interviews, Business Secretary Kwasi Kwarteng stressed that the UK would maximize what it produces along the critical minerals value chain in a way that creates jobs and growth. However, they wish to protect communities and the natural environment at the same time.

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A New Facility to Match the New Policy

Britain today finds itself in a vulnerable position, especially given the presence of so many rising geopolitical threats. After all, the vast majority of critical minerals come from just a few countries, the main one being China. That’s why the new plan involves developing supply chains that reinforce the UK’s national security interests.

To that point, the country recently began work on a rare earth processing hub at the Saltend Chemicals Park in Hull, East Yorkshire. Among other things, the multi-million dollar facility will refine rare earth oxides required for magnet production. Magnets, of course, are a key component in the manufacture of EVs.

To underpin the long-term nature of this strategy, the UK will also evaluate the criticality of its minerals every year. This will be spearheaded by the new Critical Minerals Intelligence Centre (CMIC), which will, in turn, be led by the British Geological Survey (BGS).

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It’s no secret that China believes in the concentration of power. However, that philosophy extends far beyond governance. It also dramatically affects the way the country does business. For instance, earlier this week, we saw the inauguration of the state-owned and centrally administered China Mineral Resources Group. Many mining companies perceive the move as China attempting to exert more influence of iron ore prices. In fact, some have called it “one of the biggest shake-ups of the global iron ore market in more than a decade.”

Indeed, the group will serve as a center point for virtually all of China’s mineral interests. This includes everything from investments in African mines to the buying of steel-making material from international suppliers. Those most affected, including mining giants Rio Tinto Group and BHP Billiton, have thus far refrained from commenting on the new development. In fact, experts believe that the CMRG’s emergence will have little to no effect on ore or steel prices globally – at least in the short term.

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What Exactly Will The New Group Do?

The new group’s business activities will cover activities like mining, iron ore processing, and the sale of metal ores. But that’s not all. Beijing plans for the CMRG to adopt market-oriented and law-based operations so that it can build itself into a world-class mineral resources company with global competitiveness and influence. Thus far, the organization has received capital to the tune of about US $4.3 billion (¥20 billion).

Beijing has always wanted more clout over pricing. Therefore, it’s likely that the primary aim of this new company is to even out the imbalance between global mining giants and China’s own steel industry. After all, let’s not forget that China imports approximately 1 billion tons of iron ore annually. In fact, out of its roughly 500 steel mills, only 10 contribute 40% of the national output production. Moreover, the responsibility of buying raw materials falls on each individual steel plant.

According to this report, the China Mineral Resources Group could give Chinese buyers more bargaining power. The idea is that this could give them more leverage to demand lower prices. Leading Chinese companies China Baowu Steel Group, Ansteel, China Minmetals and Shougang Group will also be under the purview of this new Group. That said, the move to centralize its purchasing power may not immediately impact prices.

The Move Represents a Retaliation Against the Iron Ore Market

Ultimately, it’s important to remember that prior to 2010, iron ore prices in China were fixed. This was an annual process, and it was determined by the country’s biggest miners and steelmakers. However, once the Chinese iron ore market started to expand, floating prices came into play. This quickly led to complaints from  Chinese steel companies about the pricing mechanisms.

Then came the COVID pandemic. This significantly disrupted the supply chain, adding to China’s ongoing financial woes. In fact, the country has constantly accused the US and Australia of unfair pricing, claiming they were coordinating to hinder China’s global rise. Therefore, it’s fair to say that this new group is China’s “retaliation.” Of course, whether or not such a centralized attempt will work remains to be seen.

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Despite the best efforts to the contrary, short-term global reliance on coal has only increased. The main reason is, of course, Russia’s invasion of Ukraine. Indeed, energy is getting harder and harder to come by, and most countries are falling back on reliable – if dirty – sources. How will this affect coal imports and exports in the near term? First, we need to consider the facts.

Energy Issues Have Left Many Nations with No Other Choice

In the US, coal production has risen significantly from last year. Though higher prices were not converting to an increase in supply, the Energy Information Administration stated that production is up 6% from the first quarter of 2021. However, they added that the figure should even out at a 3% increase for the year. This is mainly because both US domestic coal consumption and exports were down by 4% in the first quarter of 2022.

On the contrary, global use of coal has been on the rise due to the energy crisis in Europe. China, too, has ramped up coal production and consumption to help drive its struggling economy. Furthermore, the European Union (EU), facing a possible curtailment in gas supply from Russia, recently received the green light from Brussels to increase its use of coal over the next decade. The European Commission estimated that 5% more coal would be used. However, that figure could shoot higher in the short term.

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With Russia Out of the Picture, EU Countries Are Desperate for Coal

According to this Reuters report, some EU countries that were otherwise planning to exit coal usage are now seeing an increase in production and fossil-powered energy generation. In fact, the current demand for coal is so strong that even the Taliban Government in Afghanistan has hiked the price from US $90 to $200 per ton. The move came after Pakistan evinced interest in importing Afghan coal. The news came much to the discomfort of China, where some energy firms threatened a blockade of Afghan coal imports and exports.

This short-term demand for coal has also raised questions about earlier commitments by various nations to curb production in favor of “green” energy sources. According to this report, the EU had previously been committed to its net-zero emissions goals for 2050. The 27-member group had planned to increase its reliance on nuclear power and renewable sources. However, European energy grids are still heavily reliant on Russian natural gas and coal. With Russia now a pariah state, many EU countries are scrambling for new coal sources.

And while no European nation has yet reversed its commitment to phase out coal by 2030, Germany, Austria, France, and the Netherlands recently announced plans to enable increased coal power generation in the likelihood that Russia halts its gas supplies.

China and India are Both Boosting Coal Imports

Earlier this year, Beijing capped coal prices and pushed for more coal production. Already, the country’s 60% power requirement comes from coal. Of course, coal miners were reportedly quick to take advantage of the price cap to up production. Now, China has decided to increase its reliance on low-cost coal to help boost its economy and push past temporary power shortages.

Meanwhile, India, the world’s second-biggest coal importer, saw record thermal coal deliveries this June. In fact, the country’s thermal coal imports were up 35% to 19.22 million tons in June this year. That’s 56% above levels seen in June 2021. Many will note that thermal coal is mainly used to generate electricity. It is not classified as a metallurgical or “coking” coal.

Over the past few years, India has been reducing the amount of thermal coal sourced from Australia. Meanwhile, the country has increased imports of cheaper, lower-quality coal from Indonesia. All in all, it seems to fit the overarching global trend.

Due to extraneous circumstances, nations around the world are rushing to source coal at extremely competitive rates. Quality be damned.

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Germany, or rather, the entire continent of Europe, faces an extreme gas shortage this winter if the Nord Stream 1 pipeline does not come back online soon. The controversial pipeline carries gas from Russia to Europe by way of Germany. It was shut down for annual maintenance on July 11. Meanwhile, European underground storage sites are only about 64% full. Experts say this number must reach 80% or more by November 1 if Europe is to face the coming winter successfully.

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Source: iStock

Many Experts Wonder if the Maintenance Period is Legitimate

To say there is significant apprehension in the air would be a gross understatement. In fact, many worry that the Nord Stream 1 may shut off gas export completely after maintenance ends on July 21, 2022. Projections say this would see Europe running out of gas right at the peak of the heating season.

Indeed, even before the current phase of maintenance began, Russia had cut Nord Stream’s capacity to 40%. According to Reuters, Russia blamed the delay on a late supply of critical equipment from Canada. However, some in the energy business – including the German and Italian Governments – worry that this is merely a cover for Moscow to supply less gas to Europe. In the wake of the Ukrainian invasion and severe sanctions, is it possible that this “maintenance period” may simply never end?

Fears of such an event were not quelled when Russia’s state-owned multi-energy corporation PJSC Gazprom reached out to its European clients a few days ago. According to the same Reuters report, the company, which holds a majority 51% stake in the pipeline, said it could no longer guarantee gas supplies because of ‘extraordinary’ circumstances.

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Germany Seems to be Preparing for the Worst

Russia has already cut gas supplies to Bulgaria, Finland, Poland, Denmark, and several other nations. At the time, this was because they all refused to switch their payments to the rouble. Meanwhile, other parallel pipelines from Russia to Europe have also seen a reduction in gas flow over the past few months. Of course, due to Russia’s invasion of Ukraine, flows through pipelines running through that region have also been curtailed.

So far, Gazprom’s claims that a crucial turbine from Canada is causing the delay are widely disputed. While Gazprom said the turbine was scheduled to arrive around July 24^th, the German government said it wasn’t supposed to be installed until September. Regardless of the real reason for the shutdown, German is already making moves to circumvent the problem.

Indeed, Klaus Müller, President of Germany’s Federal Network Energy, recently informed a local publication known as Bild am Sonntag as to what might happen. He stated that even if Russia stopped supplying Germany with natural gas altogether, countries like Norway, the Netherlands, and Belgium could help make up for the shortfall. However, he added that Germany’s gas shortage could still last over two winters, even in the best-case scenario.

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Only Time Will Tell if the Gas Shortage Will Happen

Meanwhile, German energy company Uniper recently revealed it had received a letter from Gazprom Export in which the company retroactively claimed “force majeure” for past & current shortfalls in gas deliveries. Uniper rejected the claim, having been the first German company to hit the alarm bells over rising energy bills. Still, the company has received only 40% of Russian contracted volumes in recent weeks. In fact, it was forced to buy gas from other sources, leading to a significant rise in prices.

No matter the circumstances, Gazprom still holds 51% stake in the pipeline. This gives them majority control and, for the time being, the benefit of the doubt for its claims. The rest of the shares belong to four Western partners, including companies from France and the Netherlands. The Swiss-based Nord Stream AG consortium is the operating company for all transit, technical & legal issues. However, it does not own the asset or any of the gas it provides.

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2022 has been a roller coaster ride for iron ore prices, which dipped yet again on Monday. Of course, demand from Chinese steel remains the top reason for either a rise or downturn in prices. This week, as it turns out, was no different. In fact, prices tumbled immediately after analysts explained their “bleak outlook” for demand, citing that Chinese steel mills are reeling from losses and cutting production.

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Chinese President Xi Still Eager to Keep the Rebound on Track

The news was so impactful that predictions of iron ore dropping below the $100 mark almost came true. Indeed, the benchmark 62% Fe fines imported into Northern China fell 4.41% to just US $109.89 per ton. To make matters worse, the September iron ore contract on China’s Dalian Commodity Exchange ended daytime trade 5.8% lower, finishing at around US $107 a ton.

Inventories in China are on the rise mainly due to reduced uptake. Of course, weak local demand and COVID-19 restrictions continue to plague the entire sector. Lastly, growing fears of a global recession are damping ore prices across the board.

Back in mid-June, iron ore prices enjoyed a nice rebound. This was after Chinese President Xi Jinping vowed to initiate effective measures to achieve the country’s economic and social development goals.

At the time, his call for greater coordination on economic policy to avoid disrupting the recovery of the Chinese economy was seen as a strong signal to lift market sentiments. Still, iron ore prices have been fickle, and they plummeted just a few days after the speech.

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Iron Ore Prices Still Have Room to Slide

All things considered, iron ore has been up in 2022, averaging around $121 per ton. Still, current levels are a far cry from that, and even further from the $157 per ton price we witnessed in March. Unfortunately, by June, prices tumbled to their lowest levels since the first week of December, 2021.

Those negative prices affected steel markets too. For instance, the price of reinforcement bars used in the construction industry have declined 20% since early May. Now it seems that ore prices may experience a further downturn. According to a group of analysts, Chinese blast furnaces may continue to work at less than normal capacity because of better production discipline, adding to the stockpile.

Another factor hurting prices was the hiking of interest rates by the US Federal Reserve and other central banks. Though designed to curb inflation, the increase will surely affect demand from the global automotive and construction industries.

And to think that merely a year ago, iron ore prices had hit a record high above US $230 a ton. Back then, they were riding a wave of strong, bullish post-pandemic demand. It’s amazing how quickly the markets can flip.

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Over the past month in, the Rare Earths MMI (Metal Miner Index) slightly dropped by 0.64%.

Over the past few decades, the US-China relationship has evolved into more of a rivalry than anything else. This has left the United States eager to decouple from China on several critical issues. One such issue is the supply of rare earths. After all, China refines almost 90% of the world’s rare earths. Moreover, the country is responsible for more than 50% of RE mining, as per figures given by International Energy Agency.

A New Initiative to Shore up RE Supply Chains With Rare Earths

The US currently relies on two nations for its rare earth needs: China and Russia. We all know where the country stands vis-à-vis Russia. Fortunately, China remains on the US’ “friendlies” list – for now. Still, the Pentagon, the State Energy Department, and other organizations are expressing concerns about what would happen to the RE supply chain if China and the US ever went to war.

The US’ national defense stockpile includes minerals like titanium, tungsten, and lithium, to name a few. However, it still relies heavily on trade with China to keep the supply of these vital minerals rolling. It’s far from an ideal situation, but a new initiative might provide some much-needed security.

Just a few days ago, the State Department announced that the US and some key partner countries had established the Minerals Security Partnership (MSP). Put simply: the MSP is an “ambitious” initiative to bolster critical mineral supply chains.

2022, Adobe Stock

Incidentally, the announcement was made in Toronto, Canada, during the Prospectors and Developers Association of Canada convention. Many might recognize this as the largest such mining event in the world. This implies that the State Department planned the news release to maximize impact.

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Emission Reduction is Also Part of the Plan

The other MSP partners include Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the UK, and the European Commission. According to the State Department release, the new partnership will aim to help “catalyze investment from governments and the private sector for strategic opportunities…that adhere to the highest environmental, social, and governance standards.”

In a report by Reuters, Jose Fernandez, the Under Secretary for economic growth, energy, and the environment at the State Department, was quoted as saying huge amounts of these minerals are needed to meet the US’ emissions reduction goals.

2022, Adobe Stock

While neighboring Canada sits on large nickel and cobalt deposits, the US does not. Fortunately, the newly struck MSP should help resolve the issue.

So this renewed commitment to building a “robust, responsible critical mineral supply chain” seems strategically planned. Indeed, the statement came just a few days before NATO announced plans to adopt a new “Strategic Concept” for the coming decade at its summit in Madrid later this month.

Some Cheer for the United States

Fortunately, there was some good news on the US rare earths front this week. American Rare Earths Limited announced that its recent exploration drilling at its La Paz property in Arizona had shown some encouraging results. The organization said it had dug nine exploratory holes in April this year, and a preliminary study of the samples showed rare earth mineralization in most of the excavations.

The US Department of Defense also signed a US $120 million deal with Australia’s Lynas Rare Earths. This was to build one of its first domestic heavy rare earths separation facilities. A report in the Financial Times stated that Perth-based Lynas would export heavy rare earth carbonate. The resources would be mined and refined in Australia. Then, these commodities will ship to the US. where the individual elements would be separated for commercial use.

It also just so happens that Lynas remains the world’s largest rare earths producer outside of China.

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For US President Joe Biden, it’s a Hobson’s choice on Chinese solar panel imports. His new move to pause tariffs on imported Chinese-made silicone solar panels for two years has been either hailed or criticized.

The announcement came in the middle of an on-going investigation by the US Commerce Department. Possible trade agreement violations are being discussed, which surprised many in this sector.

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Getting the U.S. Solar Panel Market on Track

The US has been one of the slowest nations with solar energy. The latter is the fastest-growing energy source in the US. Betting on it means a faster reduction in demand for fossil fuels.

2022, Adobe Stock

A US Dept. of Energy report recently pointed out that solar power has the potential to power 40% of the US’ electricity needs by 2035.

However, President Biden has a tough call to make. He could take more years to offer incentives to local manufacturers. This hesitation would mean a further delay in US solar projects. The other option would be to quickly go in for foreign manufacturers (read: largely Chinese). The maneuver would set up the required infrastructure in order to save time and get going.

Effect of Solar Panel Imports on American Manufacturers

Former President Donald Trump imposed a tariff on the import of solar panel to stop the influx of cheap goods. This consequently throttled the growth of the solar power sector. None of the follow up actions, like getting congress to appropriately fund American manufacturers have come through.

For example, President Biden has authorized the Defense Production Act (DPA) to accelerate domestic solar production. However, congress has not explicitly appropriated additional funding. As a result, the administration cannot use the DPA for solar projects.

2022, Adobe Stock

The US requires a robust manufacturing capability to meet its clean energy goals. Right now, that’s not happening Biden supporters say. Manufacturing solar energy panels & other components requires the administration to offer financial incentives to US manufacturers. This helps offset higher domestic production costs, estimated to be about 40% over imports.

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U.S. Silicone Solar Panel Infrastructure Needs Stimulation

The US Congress continues to move in this direction, but it will take time to be implemented. For example, the house-passed Build Back Better Bill would extend the investment tax credit. The production tax credit would also encourage the production of solar panels. As a result, costs would go down down on overall production. An increase in manufacturing efficiency would also follow.

But time is something the US cannot no longer afford on green energy resources. Time constraints spurred Biden’s move to temporarily allow imports.

However, US companies and pro-US advocates are not amused and are crying foul.

This report tells a tale of caution to US solar firms. If the Commerce Dept. investigation rules that the Chinese dumped cheap goods, the US could impose retroactive tariffs up to 240%. This would drive up panel prices further. The ruling would also imperil half of planned solar projects on track for completion in the US this year.

Fluctuating Federal Policies Causing Industry Stress

A consultant with Solar Work’s Matt Smith speculated one way of avoiding Asian-related solar supply issues. One suggestion was to buy American source solar products from Canada. Another was to obtain products from a Norwegian firm distributed through Singapore.

2022, Adobe Stock

US manufacturers are trying to grapple with the ever-changing federal policy. This issue being further compounded by the COVID-19 pandemic. Difficulties convince investors to finance domestic solar projects have arisen.

The new two year rule has put China in a happy place. The country was expected to add between 75 to 90 gigawatts (GW) of solar power in 2022. These numbers are higher than a record increase in capacity last year.

Wang Bohua, honorary Chairman of the China Photovoltaic Industry Association (CPIA) recently told delegates at a conference that China could add 83 – 99 GW of new capacity each year from 2022 to 2025.

With President Biden’s new diktat, this figure could climb further by the time 2022 comes to an end.

After Russia’s invasion of Ukraine and the subsequent sanctions, the race is on around the world to find new sources of lithium. The prospect of running out of the rare element is a worst-case scenario for many countries. After all, it is a crucial component in the lithium-ion batteries used in electric vehicles. As EV demand rises off record gas costs, so too are lithium consumption and lithium prices.

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Petalite, petalite or castorite is an important mineral for obtaining lithium.

Africa Getting Much More Attention from Lithium Seekers

Countries like China are currently focusing their lithium search in Africa, which has proved a treasure-trove of “green” minerals. China is not only one of the largest EV markets in the world, but it produces around 80% of global lithium. Still, the country wants more. It’s estimated that half of the world’s total lithium resources are in South America and Australia. However, Africa is now being looked at with renewed interest.

According to this analysis by news agency Reuters, companies around the world are re-considering projects they’ve previously overlooked. Moreover, China’s interest in Africa has helped spur dozens of nations to follow suit. Back in May, the leading African mining countries gathered for a unique “Investing in African Mining Indaba” in Cape Town. The goal was to discuss the significant business potential of green metals and other valuable minerals.

Delegates were of the opinion that the transition to a low-carbon future would drive the demand for green metal resources. According to this report, the South African Minister of Mineral and Energy Resources, Gwede Mantashe, reminded the delegation that Africa has abundant and untapped resources. Among the most valuable are lithium, copper, cobalt, nickel, and zinc.

Lithium Prices Surge Amid Mining Rush

A recent report from the Voice of America dubbed the hunt for lithium “the new gold rush.” The article also mentioned that China was leading the pack in almost every category. As many know, Lithium prices have seen a near 500% increase in the past year. Of course, most experts expect that trend to continue for some time.

Incidentally, South Africa accounts for the largest percentage of the world’s Platinum Group Metals reserves, while Zimbabwe is ranked third. Manufacturers use these metals in the production of electric or hydrogen-powered vehicles, another growing market.

According to the report, the Chinese conglomerate BYD is in talks to buy six new lithium mines in unspecified African countries. Meanwhile, in the Democratic Republic of Congo, Chinese mining giant Zijin is in a legal battle with Australia’s AVZ minerals. Whomever wins will get control over the Manono mine – possibly the world’s biggest lithium deposit.

Where Is North America on This?

Both the US and Canada are also looking to support battery metals projects in sub-Saharan Africa. In fact, directions have already gone out to American car and truck makers. The bad news? They have to cut down on imported components. Alternatively, they can find or develop domestic or friendly-nation sources to redevelop vertically integrated manufacturing.

But therein lies the rub. The key component for lithium-ion batteries is in short supply in the US. Indeed, the situation is so dire that the supply chain for manufacturing lithium-ion batteries has broken down significantly.

This seems to explain a curious new development. The Snow Lake Lithium and The University of Manitoba have decided to undertake a research project. Mining affiliates will explore the critical mineral inventory of SLL’s Thompson Brothers’ site. With the growing demand for lithium, a project like this seems long overdue.

Results from the two-year project will likely shape Canada’s minerals and metals strategy for years. Snow Lake Lithium is also developing the world’s first all-electric lithium mine. When complete, it will create a much-needed domestic supply of this critical resource for the North American electric vehicle industry.

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It’s still touch-and-go for the steel sector in China despite the sprouting of the first shoots of a possible manufacturing recovery. However, last Monday, benchmark iron ore prices in the country gained a surprising 7%. This is the biggest daily rise in two-and-a-half months. Is it a sign that we should be more optimistic, or is this just a dead cat bounce?

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masterskuz55, 2022, AdobeStock

China’s Slow Road to Recovery

Chinese manufacturing activity has thus far been down in 2022 due to a fresh COVID-19 outbreak. However, since mid-May, the market has shown some signs of recovery, particularly in the country’s economic hub of Shanghai. Nevertheless, experts expect steel demand to remain lackluster until manufacturing production returns to normal in June.

S&P Global Commodity Insights reported that China’s manufacturing production index for steel consumption fell by 28 points from 2021 and 16 points from 2020. These aren’t exactly hopeful numbers, and experts are concerned about the pace of recovery despite the stimulus package.

India Playing Hard Ball on Tariffs with Iron Ore

The aforementioned 7% rise in iron ore futures is puzzling. Firstly, it comes on the heels of India raising export duties on some commodities to rein in inflationary pressures. Specifically, the country increased duties for iron ore and steel intermediates. This included raising new iron ores and concentrates tariffs from 30% to 50%. On the other hand, pellet duties went from zero to 45%. According to a report in the Financial Post, tariffs on coking coal and coke were removed altogether.

This week, the most-traded iron ore futures on the Dalian Commodity Exchange (for September delivery) were up 4.4% at $129.18 (864 yuan) a ton. This was after a surge of as much as 6.9%, the highest since May 6^th. Some experts believe India’s move may not impact China’s iron ore inventories as much as initially thought. After all, it only represented about 3% of China’s total imports in 2021. The same goes for the first four months of this year. Overall, Chain’s purchase rate from the subcontinent has stayed low due to increasing demand in India & the falling iron ore prices.

Iron Ore Prices in China are up

News agency Reuters recently reported that we could see a new rally of iron ore prices. They specifically cited the Chinese government’s decision to cut its benchmark interest rate for mortgages by an unexpectedly wide margin. Prices reacted rather quickly to this news.

According to Argus, spot 62% iron ore for delivery to northern China was up to $135.90 a ton on May 20th. That’s an increase of 5.7% from the previous day, and the best close since May 6th. Domestic iron ore futures on the Dalian Commodity Exchange were also stronger. However, they were up by a much more modest 3.4% to end at $123.62 (827 yuan) a ton on May 20th.

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China lowered the five-year loan prime rate by 15 basis points to 4.45% on May 20th. This represented the biggest reduction since the country revamped its interest rate mechanism in 2019. Analysts felt this new move was largely an attempt to prop up the property and construction sectors. These sectors account for about 25% of the country’s economy. In addition, Chinese premier Li Keqiang said Beijing would step up policy adjustments to return the world’s second-biggest economy to “normal growth.”

According to the same report cited earlier, some experts believe a rally around iron ore prices was in the cards. After all, such measures had clear implications for iron ore and steel demand. Moreover, initial signs suggest China was already on its way to increasing steel output after the winding down of winter pollution curbs and the removal of some of the COVID-19 restrictions.

All in all, April output rose 5.1% from the prior month to 92.78 million tons. However, it’s worth noting that this was 5.2% below April 2021’s numbers. The period from June onward will be crucial if we really want to get a sense of where Chinese iron ore and steel prices are heading.

China is Also Making Moves Regarding Supply

In the meantime, Channel News Asia reports that the Cameroonian government had inked a deal with Sinosteel Corporation Limited to mine high-grade iron ore for about US $676 million (420 billion CFA francs). It’s part of the country’s bid to find new sources for the steel-making ingredient.

Under the 20-year mining agreement, Sinosteel Cam S.A., a Cameroonian subsidiary of state-owned Chinese mining firm Sinosteel, will develop the central African nation’s Lobe iron ore mine. It’s part of China’s ongoing effort to diversify its ore supply beyond Australia (where it is currently engaged in a trade war) and Brazil.

The deal would result in 4 million tons of ore, with 60% of iron content being produced and shipped. The higher-grade iron ore would also help reduce Chinese carbon emissions from the steel-making process.

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Global public opinion seems divided on whether or not to impose a “carbon tax” on the metal and mining sector. This goes double for steel. Depending on which side you’re listening to at a given moment, you’ll get very different opinions on the matter. Many economists, environmentalists, and the general public welcome the idea. The steel sector, of course, is firmly on the other side of the fence.

Historically, the metals mining sector has opposed carbon taxes. This is largely due to fears that it will inflate the final selling price. However, a growing section of economists believe that a carbon tax would be highly effective at reducing carbon emissions. As per World Bank’s figures,  27 countries have enacted carbon taxes so far. That said, only seven of them were mining countries.

Why the Tax on Steel?

Steel serves as one of the most widely-used building materials in the world. The process depends upon coking coal. So, for every ton of steel produced, nearly two tons of CO2 gets released. Altogether, this accounts for around 7% of global greenhouse gas emissions. These figures relate to BOF operations only.

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Where Does the US Stand on a Steel Tax?

Of late, US lawmakers have been working on a bipartisan energy and climate bill. According to reports, it may include a tax on carbon-intensive products entering the country. Last month, US Senator Joe Manchin, D-W.Va., began talking to both Republican and Democratic lawmakers about the possible impacts of such a bill.

According to this report, the discussion was occurring at the same time the European Union (EU) was working to implement a carbon border adjustment mechanism. Green activists feel that such tariffs may eventually cut down on emissions. At the same time, they hope to make domestic manufacturers more competitive against less carbon-efficient foreign companies.

But the proposal for such a bipartisan bill is still in the very early stages.

In July last year, US Senator Chris Coons, D-Del., co-chair of the Senate’s Climate Solutions Caucus, proposed a bill to impose a “polluter import fee.” The policy was intended to affect certain carbon-intensive products entering the US. It would initially apply to commodities like aluminum, cement, iron, steel, natural gas, petroleum, and coal. However, it would eventually expand to other types of imports. The revenue obtained from the fees could then be used to support technologies designed to reduce emissions.

In April this year, Pennsylvania became the first fossil fuel-producing state in the US to adopt a carbon pricing policy. This kind of pricing works by putting a monetary value on carbon. And therein lies the rub. What’s the correct price tag to put on carbon emissions?

Running the Numbers

So far, the Biden Administration has calculated $51 for every ton of carbon released. New York State, on the other hand, pegged the figure at $125. Meanwhile, the International Monetary Fund has been kicking around a “three-tier system.” In this structure, developed countries would pay US $75 (£56) per ton of carbon, while less-developed parts of the world would pay $50 (£37) and $25 (£18).

Carbon markets can be operated in one of two ways, according to the Paris Agreement 2015. The first is through an emissions trading system that caps a total target for emissions. The other option is to use a system that allocates “carbon permits” accordingly.

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Another possibility includes what’s known as a “carbon offsetting scheme.” This provides tradable carbon credits to offset carbon emissions outside the “capped area.” This third option imposes a fee on every ton of carbon emitted.

Ultimately, many in the US oppose levying tariffs on steel and other imports from countries with higher carbon dioxide outputs. This lobby claims that carbon taxes are too complex an issue and that merely imposing a tax will not solve the problem or fight climate change. Their solution? Simply make commodities more expensive.

The US & The EU

Late last year, the European Union and the US negotiated what was billed as the world’s first carbon-based sectoral arrangement on steel and aluminum trade. However, it would not truly take effect until 2024. In the meantime, the two nations arrived at an “interim arrangement” for trade in the steel and aluminum sectors. This deal modified tariffs on EU suppliers and strengthened enforcement mechanisms to prevent “leakage” of Chinese steel and aluminum into the US.

The EU’s efforts

In February of this year, participants in a webinar hosted by Euractiv, a Brussel-based policy events organizer, expressed worries that the European Commission’s Carbon Border Adjustment Mechanism could be counterproductive. They said this would prove especially true if it didn’t provide a solution for those EU exporters of steel and other products impacted by the policy.

Incidentally, the European steel industry exports 20 million MT every year, worth almost EUR £20 billion. The Mechanism is currently in the proposal stage and is still being discussed by the European Parliament.

Europe, however, seems to be ahead of the US in the march toward carbon compliance. Many steel companies, including H2 Green Steel and Hybrit of Sweden, have begun using hydrogen and non-fossil fuels to produce “green” steel.

The de-carbonization of the steel industry is going to be a long journey. Obviously, taxation is an option that’s still on the table. However, steel producers will have to decide on a technologically and economically viable way to decrease their carbon footprint. Whether the use of hydrogen is the answer remains to be seen.

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