Why will China's iron ore imports remain 'high' in 2030 despite production cuts?

China's iron ore imports, dovetailing with its decarbonisation policy, are seen declining. As per SteelMint's estimates, by 2030, the country's iron ore imports are likely to touch 900 million tonnes (mnt). This would be a decline of around 19% compared to a little over 1,100 mnt imported in 2022.

However, it is to be noted, SteelMint feels the 900 mnt would be "high" considering that crude steel production would reduce by then.

SteelMint goes behind the scene:

Factors that will support comparatively higher iron ore imports in 2030

This import volume has taken into consideration China's crude steel production by 2030 and the corresponding quantities of raw material that would be required to produce the same by this watershed year.

Meeting decarb goals a national priority: Of course, the entire government machinery in China is gearing up to meet the country's decarbonisation goals of carbon peaking by 2030 and net zero by 2060. Naturally, the administration is cracking down on polluting industries in which steel almost leads from the front. It is the second-highest polluting industry, contributing around 15% of the carbon emissions. Therefore, cutting down steel's emission levels is a prerequisite to China reaching its decarb goals. And one way to do so is by reducing steel production, especially through the more polluting basic oxygen furnace (BoF) route. This endeavour is a top priority for the government since heavy-weight polluters like power and steel are expected to peak earlier than in 2030 to make way for other industries that are still evolving and may not be able to hit the decarbonisation button before 2028 - building construction and transportation, for instance, since China is still undergoing an urbanization drive.

Reduced crude steel production: Correspondingly, the country's crude steel production by 2030 is expected to reduce around 11% to 900 mnt from the 1,013 mnt recorded in 2022. In this, the share of steel made through BoF is seen dropping 21% to 702 mnt in 2030 from 891 mnt in 2022. On the other hand, the less polluting electric arc furnace (EAF) route is seen gaining ground in the run-up to 2030. Production through EAFs is expected to surge 62% to nearly 200 mnt from around 122 mnt in 2022.

It is also seen that the ratio of BoF:EAF in steel-making is seen tilting more towards the latter. BoF's share will reduce from 86% in 2022 to 78% by 2030, indicating the importance China is attaching to green steel. The aim is to increase output from EAFs to over 15% of total crude steel production by 2025.

China is reducing capacity through a two-pronged approach: i) It is prohibiting setting up of new capacity and, ii) encouraging capacity swap - replacing old polluting mills with new-age ones that involve far lesser emissions.

With the production cuts effected, China's hot metal production, naturally is also seen dropping from 861 mnt in 2022 to 621 mnt in 2030, a decline of 28% over the review period.

Stress on high grade ore: China's total iron ore consumption by 2030 would likely be at around 1,010 mnt, reduced by 27% from the 1,378 mnt reported in 2022. As already mentioned, the share of imported ore will be 900 mnt while the balance 110-odd mnt will be domestically sourced and beneficiated prior to use. It may be noted that China's domestic iron ore is of low quality and thus beneficiation is a must.

The 900 mnt of imported ore would still be high considering that the country would reduce crude steel production to about 900 mnt. This again can be attributed to environmental issues. The stress would be on high grade ore usage by the blast furnaces, which will be sourced either from Australia or Brazil.

Understandably, the share of domestically sources low grade ore will decrease from the current 280 mnt to 100 mnt by 2030, allowing more leeway for the superior imported fines.

Scrap usage to rise in both BoFs, EAFs: Scrap is emerging as a highly important raw material in steel-making the world over and China is making no exception to this rule. It is said ferrous scrap will be the future raw material for green steel-making.

Data reveals that China's ferrous scrap consumption will gradually rise by around 35% to touch 350 mnt in 2030 from 260 mnt in 2022. Not only will the higher number of EAFs warrant higher scrap consumption, the basic oxygen furnaces are also gearing up to increase the share of scrap in their charge mix from the present 15% to around 20% in another eight years.

Way forward

Thus, the Chinese steel industry's way forward now is intrinsically linked to changing raw material usage patterns and steel-making processes.

Many experts now feel, if steel output does not grow dramatically within the deadlines, it is possible for the industry to hit peak emissions by 2025.

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