China

According to the Financial Times, China’s President Xi Jinping surprised the global community by announcing last month a hugely ambitious plan to improve China’s environment and make the country carbon-neutral by 2060.

In addition, he said the country’s emissions would peak before 2030.

But does this really mean anything? If it does, what impact will it have on the country’s massive steel industry? The steel industry, of course, is the source of a significant proportion of the country’s carbon emissions?

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China’s environment and emissions figures

Firstly, let’s look at the scale of the proposition.

China is the world’s largest emitter of greenhouse gases (such as carbon dioxide and methane).

Last year, China’s emissions accounted for roughly 27% of the global total. The country’s total accounted for more than the U.S., Europe and Japan combined, the Financial Times reported.

Furthermore, the country consumes more coal than the rest of the world put together. In addition, China continues to commission new coal power plants.

On the one hand, China also leads the world in the deployment of solar power, wind power and electric vehicles. Its energy-efficiency policies are ambitious and successful. Significantly, there are no known climate change deniers in the Chinese leadership.

But is the pledge meaningful?

It contrasts poorly with that made by almost 70 countries and the E.U. Those countries have already pledged to make their economies “net-zero” greenhouse gas emitters by mid-century, or 10 years earlier than China’s pledge.

And the 2030 peak emissions date is a rehash of a commitment made back in 2014, suggesting peak emissions could be reached well before 2030 and the authorities are simply back-sliding.

Difficult changes

The scale of the challenge vis-a-vis China’s environment and emissions is considerable.

More than 85% of China’s primary energy last year came from coal, oil, and natural gas, all of which produce carbon dioxide. This came despite massive investment in solar and wind.

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China

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A relatively swift exit from pandemic lockdowns and the impact of stimulus-led infrastructure investment have powered China’s metals rebound. Furthermore, the Shanghai Futures Exchange has continued its summer disconnect from the London Metal Exchange aluminum price, which started in April of this year.

The resulting arbitrage window has sucked in imports of aluminum primary and remelt alloy casting ingot. As a result, China’s imports are at levels not seen since the aftermath of the financial crisis in 2009.

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China leads the metals rebound as aluminum imports surge

Combined imports of primary metal and unwrought alloy totaled 393,000 tonnes, just shy of the previous record of 394,000 tonnes in April 2009, according to Reuters. Furthermore, cumulative net imports reached 653,000 tonnes so far.

Alloy imports should be seen as in part as a replacement for lower scrap imports. However, even so, the disconnect has continued through the third quarter. Although that disconnect is expected to narrow in the run-up to year’s end, it underlines the current two-speed nature of the global manufacturing economy.

Meaning, there’s China and then there’s the rest of the world.

China tightened up on scrap grade import controls last year and precipitated a switch to imports of refined remelt alloy over scrap, even before the pandemic took hold.

Southeast Asian regional remelters have taken in the displaced scrap and exported alloy ingot to China. A similar trend is taking place with copper scrap and alloy ingot, possibly suggesting a structural shift that is here to stay.

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China and India flags

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India turned a net exporter of steel to China (and other countries) during April-August 2020 for the first time in several years, credit rating agency CRISIL reported.

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India becomes net exporter amid domestic demand slump

Local consumption in India has slumped. As such, during the aforementioned period, Indian companies exported 60-80% of their steel output.

China accounted for 45% of the total steel exports, according to The Week.

“India turned net exporter of steel to China for the first time in several years, with 69% of semi-finished steel & 28% of finished steel heading there between April & August,” CRISIL said in a statement.

The rise coincided with border tensions rising between India and China, which led to clashes in India’s Ladakh region.

Chinese steel production, iron ore imports rise

China has been the largest producer of steel globally, followed closely by India.

In the January-June 2020 period, China’s steel production rose 1.4% to 499 million tons. Meanwhile, India’s production slumped 24.2% to 43.13 million tons.

The increase in exports, however, has eased the pressure on India’s steel sector. The sector has been buffeted by lockdowns and a major slump in economic activity because of the pandemic.

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copper smelter

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This morning in metals news: copper prices gained momentum Wednesday; the rival of German steelmaker Thyssenkrupp rejected the idea of an alliance; and a Pakistani steelmaker is looking to ramp up its output amid a construction spike in the country.

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Copper price momentum

The LME copper price bounced back Wednesday after falling Tuesday, Reuters reported.

The copper price gained 0.2% Wednesday, as stocks fell to a 15-year low, per the report.

As with other materials, recovering Chinese demand continues to support metals prices (including copper).

Salzgitter CEO says company not interested in Thyssenkrupp alliance

The rival of German firm Thyssenkrupp told Reuters it is not interested in an alliance.

Salzgitter CEO Heinz Joerg Fuhrmann said a merger of the two would not improve the company’s standing.

Last year, Stuart Burns delved into Thyssenkrupp’s struggles, including its departure from Germany’s blue-chip DAX index.

In August, Thyssenkrupp reported on the impact of the coronavirus pandemic on its finances (citing the automotive technology fallout, in particular).

Pakistani steel firm aims to augment steel capacity

Per Bloomberg, China-backed steel projects in Pakistan are looking to raise a lot of money and significantly augment their steel capacity.

Agha Steel Industries Ltd. aims to triple its capacity for gray steel bars, Bloomberg reported.

Furthermore, the company plans to raise between 3.6 billion and 5 billion rupees, according to the report.

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China

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China’s automotive market has bounced back over the last quarter, with automotive sales up for the last three months.

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Marking a third straight month of year-over-year increases, China’s June automotive sales were up 11.6%, according to data recently released by the China Association of Automobile Manufacturers (CAAM).

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True to form, if not to scale, Beijing resorted to infrastructure spending this quarter to support the economy as it sought to pull the country out of government-imposed lockdowns in the first quarter.

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India has imposed definitive anti-dumping duty on certain steel products imported from China, South Korea and Vietnam after an investigation established these items caused injury to domestic producers.

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Can China ever record economic growth greater than 6%?

We don’t know, but if I were a betting man I’d say not.

After contracting some 6.8% in the first quarter of this year, estimates vary with respect to what China’s GDP growth will be for 2020 in total. CRU expects between 2-3%, according to a Financial Times article, but analysts polled by the South China Morning Post are quoting between 1.5-2.5%, with some major banks, like UBS, expecting growth at the bottom of that range.

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Many view tiny Hong Kong as something of an anathema — a hangover from the days of the British empire, part of China but not part of China, often missing the point that that is exactly its strength (or has been).

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After the last crisis, China was instrumental in spurring global growth and helped pull the West and neighboring economies along with it. Through state stimulus, China achieved double-digit growth, far beyond what its underlying economy would have otherwise been capable.

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