Profits are down in China’s iron and steel industry, but carbon emissions aren’t

Business & Technology

Iron and steel production is dirty and energy intensive. Can the industry do its part to meet China’s carbon goals?

Photo by yasin hm.

Accounting for about 15% of China’s total carbon emissions, the iron and steel industry is one the country’s dirtiest businesses, and it’s grappling with low carbon transformation to accord with Beijing’s stated goals of reaching peak carbon use in 2030 and carbon neutrality in 2060.

However, the industry is grappling with serious challenges to reduce carbon emissions across the entire production chain, such as the continued use of high carbon emitting trucks and the renovation of outdated equipment.

The context — lowered profits: Amid the daunting challenge of reducing carbon emissions, while steel prices have been volatile but generally high, production costs have risen even faster and sales and profits have been low.

According to the China Iron and Steel Association, the average sales profit margin of steel companies in the first quarter was 3.69%, down 1.12 percentage points year-on-year. In the first quarter, revenues of China Iron and Steel Association member companies was 1.5 trillion yuan ($226.92 billion), a year-on-year decrease of 3.26%, and net profits were 55.3 billion yuan ($8.36 billion), a year-on-year decrease of 25.8%.

Logistics delays plagued the iron and steel industry in the first quarter, as did rising costs and a drop in exports: China’s cumulative exports of steel products in the first quarter fell by 25.5% year-on-year. According to the National Bureau of Statistics, domestic crude steel production in the first quarter was 243 million tons, down 10.5% year-on-year; pig iron production fell 11% year-on-year, and steel production fell 5.9% year-on-year.

The takeaway: It is highly unlikely that China’s iron and steel firms can meet Beijing’s “double carbon” goals and still make a profit without what the vice chairman of the China Iron and Steel Association today called “a comprehensive green revolution.” But who is going to pay for that as the economy tanks?

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