Carbon neutrality—a new supply-side reform in the steel industry

SHANGHAI, Mar 22 (SMM)—In recent years, the steel industry has witnessed a series of reforms. From key words such as the "supply-side reform" in 2016, the "capacity reduction" in 2017, the "ultra-low emission transformation" in 2018, and the "accelerating state-owned enterprise reform" in 2019, "high-quality development" in 2020 and "carbon peak", "carbon neutrality", "reduction of crude steel output", "promoting mergers and reorganization of the steel industry", "high-quality development of the steel industry” in 2021, we can see that China's steel industry is gradually moving towards green development.

Output of crude steel produced by blast furnace is expected to shrink as from this year the state will strengthen measures to reduce carbon emissions and will gradually establish a restraint mechanism based on carbon emissions, pollutant emissions, and total energy consumption.

Electric arc furnace (EAF) steelmaking may be further developed as carbon emissions of short-process steelmaking are far lower than that of long-process. Li Shiping, president of Baowu Group Zhongnan Iron and Steel, said that deploying a network-type short-process environmentally-friendly smart steel plants can reduce carbon emissions by about 80%, and we should promote steel consumption by the construction sector and accelerate promotion and application of steel structure buildings.

The merger and reorganization in the domestic steel industry may accelerate. China’s iron and steel industry will gradually mature. Iron and steel companies that have experienced losses have reached a consensus that the market is close to saturation and the scale of industrial development is close to the peak. They are willing to withdraw or replace capacity, and industrial concentration will rise rapidly.

Iron ore: To solve the problem of iron ore short supply

Domestic iron ore companies should be given 5 to 10 years of income tax reduction and exemption, and unreasonable restrictions on ore mining should be cancelled in order to expand domestic iron ore supply. Green mines should be allowed to maintain operation or resume production as soon as possible. Domestic iron ore resource supply capacity should be stable at more than 30% of the demand.

We should reduce high dependence on a single country. It is recommended to cultivate 1-2 overseas iron ore resource development enterprises, coordinate existing overseas resources, and concentrate efforts to accelerate resource development and production expansion. At the same time, we should lay out processing bases and import channels that meet China’s new standards for imported secondary steel raw materials, adjust import policies of steel products, encourage imports of billets and ingots, and limit exports of primary products to reduce domestic consumption of iron ore.

Steel scrap: To resolve the steel scrap tax issue

We should raise the steel scrap value-added tax rebate ratio from 30% to more than 70% and solve the problem that scrap recycling companies have no VAT invoices.