China steel sector sees little impact from carbon tax

The carbon-based import tariffs on high-polluting goods including steel backed by the European Commission will only impact China's steel industry in a minor way, despite all the pros and cons, Li Xinchuang, Chairman and Chief Engineer of China Metallurgical Industry Planning and Research Institute, said at the Singapore Iron Ore Forum on May 17.

"Considering the relatively low proportion of China's steel exports in total steel output, the country's No.1 position in the global steelmaking industry and robust domestic steel demand, there'll be limited impact of EU's carbon tariffs on China's steel market," he said.

To prevent the risk of carbon leakage and achieve the EU's ambitious target of carbon emission reduction, the European Commission introduced carbon emission costs on imported cement, iron and steel, aluminium, fertilizers and electricity products into the EU from 2026, according to the Commission's official website.

Meanwhile, China's steel production is chiefly to meet the needs of national economic development, with only small quantities of steel products being exported to other countries, Li pointed out.

In 2021, China produced a total of 1.3 billion tonnes of finished steel, while the country's steel export volume of 66.9 million tonnes only accounted for 5% of total output, Li shared, adding that the export proportion has stayed on a downward trend in the recent five years.

Particularly, "our country's exports of some medium- and low-end steel items were hampered since last year when Beijing had removed export tax rebates," Li stressed.

In fact, China's total steel exports slumped by 29.2% on year to 18.16 million tonnes over January-April, according to the latest data released by China's General Administration of Customs.

Moreover, Li commented that China, as the world's largest steel-producing country, also has a solid foundation in its steel industry that boasts advanced steelmaking and processing technologies, so the overall steel industry would be hardly affected the EU carbon levy.

Also, "China's large-scale and comprehensive industrial system has already provided massive steel demand to end-users," he said.

Although the overall influence is seen to be slight, some adverse impacts on China's steel industry may exist in the short run, according to Li.

"With the implement of EU's carbon tariff in 2026, Chinese integrated mills - the majority of the country's steelmakers - may lose price competitiveness of their export products, as mills will have to raise their export prices to cope with higher costs due to the tax imposed on them," he pointed out.

As for steel's end-users such as automakers and machinery manufacturers, they are exempt from the carbon tariff for now, but it is possible that the policy will cover more kinds of products such as these in the future, according to Li.

"At that time, Chinese steel demand will be hampered greatly given the reduced exports of automobiles and machinery products," he warned.

Looking on the bright side, China's steel industry will still benefit from the EU's ambitious decarbonization strategy in the long term, Li commented.

"Because the whole steelmaking industry will endeavor to produce green steel through technical innovation and industrial upgrading, leading to the structural optimization of Chinese steel products. And China's commitment to achieve carbon peak and neutrality targets by 2030 and 2060 respectively will be well-supported," he concluded.

Written by Lea Li, liye@mysteel.com

Note: This article has been published in accordance with an article exchange agreement between Mysteel Global and SteelMint.