As the US and EU consider imposing carbon tariffs on China, its steel and aluminum exports could take a hit
China's steel and aluminum exports are under attack once again, as the US and EU weigh new tariffs linked to carbon emissions.
The idea from President Joe Biden's administration will likely have the biggest impact on the aluminum market, especially in the European Union, which has been relying on Chinese smelters to fill gaps in production following Russia's invasion of Ukraine. This dependence highlights the inflationary risks of any measures that reduce supply or add costs based on climate goals.
Paul Gambles, co-founder and managing partner of MBMG Group, said in an interview with Bloomberg TV, "This Biden is potentially stoking inflation, hurting global trade and certainly helping China-US relations." not doing."
The EU is already considering a carbon tax on imports including steel and aluminium, and China is the largest producer of both metals. It exports its surplus, at times prompting accusations that Beijing is gobbling up the world market to the detriment of other suppliers. It is also the world's worst polluter. The steel industry is China's second biggest emitter after electricity generation, and combined with aluminum accounts for about a fifth of the country's carbon.
China's steel exports peaked in 2015 at 112 million tonnes, earning less than the G-7, but are now running at about half that amount. Only a fraction of it ends up in the US and the EU. According to research firm Mysteel, current protectionist measures could reduce US sales to less than 1 million tonnes in 2021, which accounts for just 1.3% of China's total exports of the alloy.
More steel – more than 3 million tonnes last year or 4.6% of exports – is sold to the EU. "The potential tariffs will have a major impact on exports of high-end steel products in the region," said Xu Xiangchun, analyst at MySteel. "Mills making high-end steel products are likely to be hit."
Meanwhile, aluminum sales abroad hit a record 677,000 tonnes in May, much of it taken by Europe as the war in Ukraine shuts its own smelters due to increased energy costs.
It is unclear how China's move on steel will change with measures to link exports to climate goals. While individual steelmakers have invested heavily in green technologies, the industry as a whole is lagging behind. According to a report last month from the Center for Research on Energy and Clean Air, investment in new coal-fired blast furnaces increased in the first half of 2022, which is not compatible with Beijing's carbon policies.
While tighter regulations on CO2 helped cut steel production by record levels in 2021, and a similar drop in output is expected for 2022, the government extended its deadline for the industry by five years to 2030 Which once again highlights the importance of infrastructure spending to our economic goals. More such incentives are expected in the coming months as the government looks to support the slowing economy.
However, aluminum production is becoming greener as more hydropower is being deployed to replace coal, said Xiong Hui, an analyst at Beijing Antique Information Development Co.
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