China’s Convenient Truth
November 2016
China’s latest air quality limits have the potential to restructure the nature of China's steel industry. It has been left to the provincial governments to enforce these limits. Inland steel production contributes more particle emissions per tonne of steel production than coastal regions due to lower quality raw materials, older equipment and less social backlash to polluting industries. Capacity swaps, stricter environmental standards, and increasing awareness to health impacts of particulate emissions will pressure inland steel production.

Chinese Production

Most Chinese steel production comes from a large number of small producers, with only one third of output coming from the top 10 producers. More than 50 percent of production comes from companies producing less than 5Mtpa of crude steel. This is far below that of other major steel producing countries. After years of declining steel prices and narrow to negative steel mill margins, the appetite for investment in emission technologies, that do not add value to the steel products, has been lacklustre to say the least. Additionally, in such a fragmented industry it is difficult for the government to adequately track and control emissions from all steelmakers.

China’s Top 10 Crude Steel Producing Companies by Volume in 2015

Source: AME

Particulate Emissions

Air pollution and dust control continue to be placed high on the Chinese policy-maker’s priorities as citizens become increasingly aware of the impact of industrial emissions on their health. Additionally, China creates more emissions than any other country and so its response to climate change is under the international spotlight. The latest revision of China’s National Ambient Air Quality Standard (NAAQS-2012) was officially implemented nationwide on January 2016. The NAAQS-2012 includes new PM2.5 and PM10 limits–the amount or particulate matter above 2.5µm and 10µm in diameter–at 35µg/m³ and 50µg/m³ average over a 24-hour period, respectively. These new limits, while still above the recommended World Health Organisation (WHO) limits of 10µg/m³ and 20µg/m³ gives China the strictest emission standards of all major steel producing countries. These additional limits were introduced as PM2.5 is linked to a number of health problems, particularly respiratory diseases. PM2.5 is also a key contributor to smog. While these standards are decided at a national level, it is left to provincial governments to implement.

WHO Recommended Particulate Limits and Major Steel Producer National Limits

Source: AME, WHO

In the Iron and Steel industry, blast furnaces and sinter plants are the biggest contributors to these types of particulate emissions, however, basic oxygen furnaces (BOF) and electric arc furnaces (EAF) still contribute a significant amount. Recently released data by Wang et al 2016 breaks down particulate emissions (PM10+PM2.5) from steel plants by province in 2011 analysed with the breakdown of crude steel production by province for that year. While the PM generation rates of plants across China’s provinces varies, some correlations can be made. PM generation in coastal provinces such as Guangdong and Fujian are less than half of that generated in the inland provinces of Jilin and Xinjiang. It is important to note that the overall findings of the research was that nine out of the ten least polluted cities were in the south-eastern region on china, where awareness on the health effects of these emission is high.

Many of the regions with lower rates of PM emissions per tonne of crude steel production can be linked to provinces that are coastal and/or contain a Special Economic Zone (SEZ). As the NAAQS is implemented on a provincial level, AME considers it to be in the best interest of these provincial governments to ensure that all plants in the province are adhering to these standards in order to retain their attraction for foreign investment within the SEZ. As such, this may encourage the instillation of emission reducing technologies. The two provinces with the lowest rate of particulate emissions are the south-eastern coastal provinces of Guangdong and Fujian, both of which contain SEZ’s as well as being among China’s wealthiest.

Crude Steel Production and PM2.5+PM10 Emissions by Province in China, 2012

Source: AME, Wang et al 2016

Provincial Impacts and Restructure

Another hypothesis as to why coastal regions have lower particulate levels is that plants located up to around 300km inland can generally access both seaborne and domestic iron ore and coal markets, any plants that lie further inland than this are restricted to domestic sources of raw materials. As such, steel mills in coastal provinces are expected to have lower particulate emissions if they are using higher quality raw materials purchased from the seaborne market, in turn, this aids these steel plants that use imported materials in reducing their emissions, China has imposed strict trace element testing on all coal imports to restrict the amount of harmful elements such as chlorine, fluorine and mercury that exist naturally within coal deposits. There are two provinces in China that appear to buck these trends; Xinjiang and Shandong. While Xinjiang is the western-most province of China, completely excluding the use of seaborne imports, it does contain an SEZ, and it has one of the highest PM rates of all provinces. Even more so that some other parts of China, production in Xinjiang it typified by many small producers with no access to the seaborne iron ore and coal markets, relying on domestic and Mongolian suppliers. Mongolian metallurgical coal imports, like domestic coal, is of significantly poorer quality than seaborne imports—in general it is more friable and prone to generate dust during handling— these properties have the effect of reducing crude steel yields and increasing overall emissions.

The other province that does not conform is Shandong, a coastal province, that at the time of the data collection, had the highest rate of particulate generation from steel production nationwide. This can be partly explained by the fact that the capital city, and major industrial area of Shandong, Jilin is located almost 300km inland from the major port cities of Rizhao and Qingdao. AME expects that with capacity cuts and capacity swaps currently underway to reduce China’s steel production and move existing production away from heavily populated regions to less populated coastal regions, Shandong will move down the list of emitters. An example of this capacity swap principle currently underway is the Rizhao works. Once Rizhao is fully commissioned, it will have a capacity of 8.5Mtpa, and is expected to replace several smaller steel plants within the city of Jilin with poorer emission reducing technologies in place.