China's steel production could grow 4-7% this year

China, the world's largest steel producer, could produce 4-7% more steel this year than last year without meeting its pollution control targets.

The Chinese government recently said it will limit steel production this year to 2020 levels to cut CO2 emissions. However, a report produced by climate analytics provider TransitionZero, a nonprofit, said China's power grid production could reach 88.01 million tonnes in August, up 1% from July.

From January to August, the Asian giant produced 734.99 million tonnes of steel, up 6% year-on-year, according to data from TransitionZero's satellite imagery, mainly driven by carbon-intensive blast furnaces and oxygen furnaces.

“China's crude steel production could grow 4-7% this year, which means the country's ability to meet the government's target of limiting steel production to 2021 to 2020 is unlikely without reforms,” said Matthew Gray, an energy analyst. TransitionZero. "As a result, China risks emitting an additional 158 million tonnes of CO2 - the equivalent of the total emissions of the Netherlands."

According to Gray, the goal of limiting production to 2020 levels can only be achieved through repression, especially in the central and western regions.

“China's central authorities have made significant strides in cutting production in the eastern provinces, but more needs to be done in the central and western provinces to meet these targets,” Gray said. "With additional measures, China will be able to reduce emissions and show climate leadership ahead of COP26."

TransitionZero's data is based on a comparison of scale factors between its own data, which quantifies the volume of liquid steel produced by the blast furnace /converter through the heat capacity of the furnaces' hot spots, and worldsteel data, which provides monthly total crude steel production.

Analysts at Liberum Bank said in a report dated August 31 that "there is confusion caused by the Chinese government's restrictions on steel production." There are conflicting reports from various sources and regions on the extent of its success.

According to TransitionZero analysts, the rise in steel production in China is likely driven by a stimulus from the country's post-COVID-19 construction boom.

According to various analyst estimates, the production of hard-to-cut steel accounts for about 9% of CO2 emissions worldwide, but between 10% and 20% in China.

However, China is expected to continue to meet its overall zero-carbon goal by 2060 “because it will have no choice,” Gray told S&P Global Platts in an interview.

TransitionZero said its methodology uses a combination of satellite imagery and publicly available data to monitor steel production worldwide and makes independent estimates of production in near real-time. This methodology, which has also been used to measure emissions from China's coal-fired power plants, helps the energy and heavy industries assess the risks and opportunities of a transition in their quest for decarbonization.

However, the company has yet to consult with the Chinese government about the findings, although Gray said it "can expect their cooperation."

The satellite data analytics company has decided to focus on the steel industry in its movement to collect data that can help accelerate the transition to a low-carbon economy. This is because in the steel sector as a whole, “data availability ... and transparency is very poor, mainly because steel is a commodity that is sold in a highly competitive global market,” Gray said.