Quietly, in a major change of policy, the Chinese government has bowed to concerns about rising energy costs and supply and drastically softened its tough rules on coal and steel production for the coming northern winter season. It’s a move that could very well see exports from Australia of iron ore, coal, and LNG rise by more than expected.
That’s despite maintaining in late August and in September that the pollution-cutting curbs would remain in place across much of the industrialised (and badly polluted) northern areas of the country.
Rather than continue with the production cuts, the central government has changed the curbs to a series of targets, thereby shifting their enforcement to local government and away from the central administration, which had been sending teams of inspectors across northern China in recent months to make sure the curbs were being adhered to and would continue.
Also blamed are the pressures from the trade war with the US which the Chinese government is trying to meet with higher spending on infrastructure, tax cuts for some exporters and other assistance to exporters hurt by the tariffs.
The relaxation on coal mining is meant to boost power station coal stocks ahead of the start of the winter heating season on November 15 – even though China is continuing to import more and more LNG from Australia, the Middle East, and Asian producers.
Chinese coal imports have been solid and are heading for 300 million tonnes or a bit more by the end of December, but could have been much higher had it not been for the deliberate slowdown in processing imports (especially of thermal coal) in the past months or two to help local producers.
Surveys of Chinese manufacturing and service sector activity have painted a picture of a slowing pace of activity, weakening demand, sliding investment and sluggish growth in retail sales.
One fall out from this policy has been the steel industry’s complaints that the pollution-cutting production curbs are too tough and preventing the making of a wide range of steels used in infrastructure.
The curbs — imposed on industries where state enterprises are prevalent such as steelmaking (especially sintering and coke making) and coal mining — were meant to target airborne pollution, which worsens during the winter as much of the country’s northern cities are heated with coal-fired power.
The relaxing of curbs on coal mining comes after the government rushed through the mass conversions of millions of homes to gas last winter and through 2018 – but gas heat is less than that from coal and there have been growing complaints about homes and schools facing another winter of freezing conditions like in 2017-18 when there was an uprise in unrest in some northern areas.
Last year, steel producers in four major production cities were forced to halve their output during the winter months while reducing their use of coking coal by nearly a third. Twenty-eight cities and regions were mandated to cut steel and aluminum output by roughly the same amount.
This winter, regulators are replacing hard caps on coal use and steel production with weaker targets, weakening draft guidelines put out in August. Levels of particulate matter of 2.5 microns (PM2.5), a standard for measuring air pollution, must be cut by 3%, rather than the previous 5% target.
Steel production curbs have been scrapped completely, as long as producers meet emissions targets. That should boost imports of iron ore and coking coal from November through April next year.
“Chinese steel mills have been complaining about blanket winter restrictions despite their varying efforts and investments in environmental protection. Beijing has taken this into consideration in the curbs planned for this year,” said Li Hongmei, a senior consultant at Mysteel Global, a research group, told the Financial Times on Monday.
“However, experts said that even the lower targets were ambitious because last year’s air pollution levels had already dropped significantly,” the FT reported.
