MNI: New Sectors & Green Financing To Drive China Steel Future

Steel production in China’s northeast will stabilise despite the recent dip in prices as future demand from advanced manufacturing and green technology – boosted by green bonds and loans – replaces consumption from property and construction, experts and policymakers told MNI.

The northeast – which includes Liaoning, Jilin and Heilongjiang – is China’s third largest steelmaker, producing 58 million tonnes between January and August this year. While the region’s share of output has fallen over the years due to production caps and carbon-emission requirements, President Xi Jinping has stressed its development is vital to the country's pursuit of high-quality growth.

Li Kai, professor and deputy head at the China Northeast Revitalisation Research Institute, noted that new growth drivers such as electric vehicle manufacturing, will provide sufficient demand to maintain the region's steel mills in coming years.

Steel prices fell to CNY3,560 in June as Chinese demand failed to meet expectations following a Q1 rally to CNY4,400 a tonne, leading some analysts to point to Beijing’s low appetite for large-scale stimulus in the property market and a focus on emerging industries.

GREEN INVESTMENT

“At a provincial level we are supporting the steel industry’s green transition, getting more investment into eco-friendly short-process smelting is an important part,” Huang Yang, deputy director at the National Development and Reform Commission’s Liaoning Province told a recent press conference.

China’s steel industry requires CNY3.5 trillion of investment to achieve its carbon targets by 2030, and CNY20 trillion to reach carbon neutrality by 2060, according to a report by climate think tank Transition Asia, which noted producers are increasingly using green and transition bonds to meet government requirements.

However, the carbon intensive steel industry faces challenges to issue green bonds, which come with stringent requirements on how they can use proceeds. Only five steelmakers have issued a total of CNY11.2 billion of green bonds as of March this year, accounting for only 0.46% of China's green bond issuance. Liaoning-based Angang Steel Group, the second largest steel manufacturer in China and one of the five, issued CNY300 million via green bonds in 2022.

Authorities have since allowed steel companies to issue transition bonds, which have wider compliance criteria. Hebei-based Hegang Steel raised the first EUR300 million steel industry transition bond in October via the Bank of China through its Luxembourg branch.

China requires CNY487 trillion of investment to fund its transition over the next 30 years, which has driven increased green-bond volume (See MNI INTERVIEW: China’s Green Asset Push To Lure Global Capital - Bonds & Currency News | Market News)

Lauren Huleatt, investor lead at Transition Asia, said the automotive industry will also drive demand for greener steel as the sector aims to meet environmental targets. She told MNI foreign carmakers based in China were important for driving green-steel demand.

BMW maintains an 830,000 unit a year factory in Liaoning, and recently announced plans to begin using short process low-carbon steel, which reduces waste and does not use coal from 2026.

Li noted authorities want the steel industry to become cleaner and less carbon intensive. “Innovation in the steel industry is a priority,” he said.