International steel: China's path to decarbonisation

Baotou Steel main control centre

Over the past two decades, the Chinese steel industry has significantly increased its production and has become the largest crude steel producer in the world. In 2023, China produced over 1 billion tonnes of crude steel, which corresponds to 53.9% of total global production.

Among the world's top ten steel producers are six companies from China: Baowu, Ansteel, HBIS, Shagang, Jianlong and Shougang Group.

These large state-owned companies dominate the Chinese steel industry. The Baowu Group alone produced around 131 million tonnes of crude steel in 2023.

The 50 largest steel-producing companies in 2023, million tonnes, crude steel production.

Difficult conditions for Chinese steel producers

The Chinese steel market was characterised by an increase in production capacity between 2021 and 2023. At the same time, domestic consumption fell significantly. The decline in domestic consumption in China's steel market between 2021 and 2023 is mainly explained by the downturn in the property sector. ‘The decline in steel consumption is largely due to the slowdown in new home construction,’ said Jiang Wei, an official from the China Iron and Steel Association (CISA). This is also reflected in the statistical data and analyses, which show a significant decline in new home construction and sales. Various economists and market observers such as S&P Global suggest that this decline in the property sector has had a direct impact on the demand for structural steel, which in turn has led to an oversupply in the steel market.

As no specific measures were announced at the Third Plenum of the Chinese Communist Party in July 2024, attention remains focused on future developments in the Chinese property sector in anticipation that new opportunities may arise.

Hu Wangming, the chairman of Baowu Steel - the world's largest steel producer - described the situation as a ‘winter’ for the industry, which is in the midst of a protracted period of adjustment.

Adjusting production capacity could improve the profitability of the Chinese steel industry and support its sustainable development.

Inspection of steel coils in the warehouse, HBIS Group Co. Ltd

In the face of falling domestic demand, China turned to international markets and almost doubled its steel exports from 53.7 million tonnes in 2020 to 94.5 million tonnes in 2023, reaching its highest level since 2016. The majority of Chinese exports went to regions such as Southeast Asia, the Middle East and Central America. Exports to the European Union increased significantly and almost doubled in 2022, but stagnated in 2023 due to trade restrictions.

Chinese steel manufacturers now have to deal with difficult trading conditions not only at home but also abroad.

The US adjusted its tariff policy early on to support the domestic steel industry - a policy that was tightened even further under President Joe Biden's administration. With the announcement of a 25% import tariff on steel and aluminium of Chinese origin, which is due to come into force on 15 October 2024, Canada is now following its neighbour's example. Numerous countries that are experiencing an increase in imports from China are discussing or implementing similar measures to support their local industries. Such regulations have been proposed or implemented in countries such as Vietnam, Thailand, Taiwan and India.

However, protectionist tariffs can also have a potentially negative impact on a country's own economy. Industries that rely heavily on imported materials face challenges as importers and companies that depend on affordable steel for their products are faced with higher costs. This in turn can lead to higher consumer prices and reduced competitiveness in such sectors.

© SIMONA AGJi Chen et al. (2021), RMI.org

Comparison of energy consumption in steel production by fuel type in China, the US and the UK

China's green Goals

China has abundant and cheap coal resources, making coal the most important fuel for steel production. The majority of Chinese steel is produced in primary steel mills using the energy- and carbon-intensive BF-BOF (blast furnace-base oxygen furnace) route. By comparison, only a tenth of Chinese steel was produced in electric arc furnaces (EAF) in 2021, compared to around 30% in the USA.

However, coal has the highest carbon emissions compared to other metallurgical energy sources with the same calorific value.

Initiated by President Xi Jinping, China's environmental targets therefore aim to reduce carbon emissions by 2030 and achieve carbon neutrality by 2060. The steel industry, which is responsible for around 17% of China's carbon emissions, plays a crucial role in this. However, the relatively young age of the plants poses a challenge. Currently, the average age of the Chinese blast furnace fleet is around 13 years - less than a third of the typical lifespan of such plants. Compared to other countries, the assets to be decommissioned in the steel sector in China would therefore be significantly larger.

China's current policy currently stipulates that decommissioned coal-based steel production capacity can only be replaced by around 80% coal-based capacity, which will lead to a reduction in overall capacity.

© Hasanbeigi et al. (2023) Net-Zero Roadmap for Chinese Steel Industry.

Projects for DRI production in China

Investing in the green transformation

By 2030, a significant increase in secondary steel production could be achieved through improved recycling methods. A report by RMI states that China plans to increase secondary steel production to up to 60% of total steel production by 2050. This change will be driven by the increasing availability of scrap resources and supporting policy measures.

The share of EAF production is also expected to rise to at least 15% by 2025, although forecasts indicate that this target may be reached ahead of schedule.

China has also commissioned the world's first industrial, predominantly hydrogen-based DRI plant and plans to build more hydrogen-based steel production capacity before 2025. The HebeiIron and Steel Group (HBIS), for example, signed a contract with Tenova in 2020 to develop a DRI plant with a total capacity of 0.6 million tonnes per year using enriched coke oven gas with a hydrogen concentration of 70%.

HBIS ESG Report

In 2023, HBIS invested around 1.61 billion yuan (approx. 205 million euros) in pollution prevention and environmental improvement projects.

In its 2023 ESG report, Beijing Jianlong Heavy Industry Group Co. Ltd reported the optimisation and modernisation of production processes, including improved raw material processing and more efficient use of scrap resources. In 2023, the Group used 1.71 million tonnes of scrap, an increase of 150,000 tonnes compared to the previous year.

In addition to DRI pilot projects, Chinese steel companies such as Baowu Steel, Jiugang Steel, Angang Steel and Baogang Steel have established research institutes to focus on the research and development of hydrogen metallurgy innovations and technologies. Chinese steel companies are interested in using hydrogen-rich gases in iron production to reduce coke consumption and cut emissions. In early 2017, Xingtai Iron and Steel Company, based in Hebei Province, carried out a pilot project on hydrogen-rich iron production in collaboration with the China Iron and Steel Research Institute. The hydrogen-rich gas comes from the coke oven gas produced on site.

A recent breakthrough in Jianlong's CISP project has led to an innovative hydrogen-based smelting reduction process that could reach industrial scale before 2030.

From the ESG Report of the Beijing Jianlong Heavy Industry Group

Conclusion

The Chinese steel industry has seen a remarkable increase in production capacity over the past two decades, making China the world's leading producer of crude steel. This development demonstrates China's endeavour to respond to global demand and become an industrial leader. However, this development is being hampered by falling domestic demand and global trade conflicts, which emphasises the need for China to make its own steel production more sustainable and competitive. This will require significant investment in green technologies and a switch to cleaner production processes such as hydrogen metallurgy. China's increasing efforts to decarbonise, including the goal of carbon neutrality by 2060, demonstrate its commitment to sustainable practices and green technologies.