Others were more optimistic, expecting that impact on steelmaking raw materials will be limited in the near-term given the slowdown in Japan’s crude steel output in recent years, adding that it may also speed up Japan’s decarbonization efforts, sources told Fastmarkets.

Overview of Japan’s new plans

Japan’s carbon trading market has been in its pilot phase since April 2023, with participation being voluntary until now.

The new mandatory trading system is set to initially cover 300 to 400 large-scale carbon dioxide (CO2) emitters, including steel, power, chemical and automotive producers that release more than 100,000 tonnes of CO2 annually, local media reported on November 22.

Under the scheme, the government will allocate emission quotas individually. Firms that emit less than their quota can sell their surplus carbon credits to others, while those emitting in excess must purchase additional credits or face penalties.

The government is expected to finalise the specific details of the trading system, including individual company quotas by 2026. A legislative proposal to amend relevant laws is expected to be introduced during the parliamentary session in 2025.

Japanese government officials are also considering setting a new target of 60% emissions reductions by 2035 and 73% by 2040, compared with current goal of 46% emissions reductions by 2030. These are both reductions in relation to 2013 levels.

Countries worldwide have been adopting emissions trading, a type of carbon pricing which charges companies based on their CO2 emissions, in a global shift toward a low-carbon future.

The European Union launched the world’s first Emissions Trading System (ETS) back in 2005, with its scope expanding to maritime transport emissions as well this year.

In Asia, South Korea launched its ETS in 2015, while China launched its ETS in 2021.

In September, China – the world’s largest steelmaker – also announced plans to onboard 1,500 firms in the steel, cement and electrolytic aluminium sectors to its ETS.

What does this mean for Japanese steelmakers?

Japanese market participants generally expect the new carbon tax to push up steelmaking costs in the long run, although the impact of this could be limited in the short-term due to low production rates in recent years and sparse details on the carbon quotas.

Major steel mills have been voluntarily reducing their crude steel production in recent years due to weak downstream demand, indirectly reducing their carbon output, a Japan-based source told Fastmarkets.

“If Japanese steel mills continue to cut crude steel production, they may automatically meet their target of CO2 emissions reduction in 2030,” the Japan-based source said. “In addition, emissions quotas have also yet to be allocated, so in the short-term, it may not have a significant impact on mills’ demand for different raw materials.”

The impact on iron ore demand is expected to be especially limited because most blast furnaces rely on long-term contracts and rarely procure material from the spot market.

Earlier in 2024, Japanese iron ore inventories were so high, they were occasionally being resold to the Mainland Chinese market.

A second Japan-based trader said there is “less flexibility to adjust long-term contract iron ore volume quarterly” unless they negotiate the volume at the start of the fiscal year. In 2024, most steel mills in Japan have reduced usage of high-grade pellets in blast furnace to about 5% due to the high cost and weaker downstream steel demand.

“There has been no similar plan like that seen in Mainland China to raise the pellet ratio in blast furnaces to reduce overall carbon emissions. Mills have been focusing more on transforming to hydrogen fueled electric arc furnace (EAF)-based steelmaking,” the second trader said.

Japanese market participants generally expect the new scheme to nudge steelmakers into investing in more, or speeding up investments, in decarbonization technologies, sources told Fastmarkets.

“If the carbon emission trading price is higher in the future, it could speed up mills’ steelmaking technology upgrades,” the second trader said.

Nippon Steel is planning to replace a basic oxygen furnace (BOF) with a new EAF at its Yahata plant and plans to build another EAF at its Hirohata facility. The steelmaker is also looking into using hydrogen to produce low-carbon steelmaking raw materials, included direct-reduced iron (DRI).

Other steelmaking giants, JFE Steel and Kobelco, are set to convert BOFs into EAFs in the latter half of the decade. The former saw its first green steel sales outside of Japan earlier this month.

In the long run, some Japanese market participants fear that the added costs could make it more difficult for firms to compete with cheap imports, particularly from China.

The gap between global steelmaking demand and capacity was approximately 551 million tonnes in 2023, according to OECD data.

“With the added carbon costs, this would only hurt Japanese steel prices in the short run, making them less price competitive than their cheaper Chinese counterparts. To counter this, we might see the Japanese-equivalent of the EU’s Carbon Border Adjustment Mechanism (CBAM),” a Singapore-based trader said.

Tighter scrap supply for the rest of Asia?

Japan’s shift toward domestic EAF steelmaking, supported by the new ETS scheme, could disrupt Asian scrap markets and send scrap prices higher, sources said.

Limited scrap availability has been an ongoing concern for steelmakers, with a shortage of high-quality scrap being of particular concern.

In October, major local scrap buyer Tokyo Steel announced plans to grow its scrap collection capacity with a new yard in Chiba prefecture.

In June, major trading firm Mitsui also announced plans to invest in Indian recycling major MTC Group to secure more scrap.

A potential tightening of Japanese scrap supply could be especially troublesome for Vietnam, which has grown increasingly dependent on Japanese scrap imports in the recent year compared with costlier deep-sea scrap, sources said.

Vietnam overtook South Korea to become Japan’s largest export destination by volume, with the Southeast Asian nation importing 1.99 million tonnes of ferrous scrap from Japan in the first 10 months of 2024, making up over 51.2% of Vietnam’s total steel scrap import volumes, according to the latest Vietnam customs statistics.

The country’s cumulative import volumes from Japan for January to October jumped by 763,108 tonnes, or about 62.4%, from 1.22 million tonnes the year prior.

In contrast, Vietnam imported only 416,286 tonnes of steel scrap from the United States in the same period of 2024 , a decline of 409,892 tonnes, or 49.6%, year on year, customs data also showed.

Japanese scrap prices into Vietnam have maintained a discount of roughly $20 per tonne in relation to scrap from deep-sea sources like the US and Australia.

Fastmarkets’ weekly price assessment for deep-sea bulk cargoes of steel scrap, HMS 1&2 (80:20), cfr Vietnam, has averaged $382.31 per tonne for the first 11 months of the year thus far, down more than $20 per tonne from an average of $406.56 per tonne the same period in 2023.

Fastmarkets’ corresponding weekly price assessment for steel scrap, H2, Japan-origin import, cfr Vietnam, has averaged $363.51 per tonne for January to November 2024, falling about $30 per tonne from $392.94 per tonne a year earlier.

South Korea and Taiwan, Japan’s second and third-largest export destinations for 2024 will likely also be affected, albeit by a smaller extent, sources told Fastmarkets.

Korea has been primarily sourcing from its domestic scrap supply amid sluggish construction demand and pressure from cheap billet from Mainland China.

Taiwan’s scrap demand has also been adversely affected by multiple typhoons in 2024 this year, leading to a slowdown in scrap buying appetite. Wide availability of cheap billet further eroded scrap demand.

Fastmarkets’ price assessment for steel scrap H2 export, fob main port Japan was last at ¥44,500-46,100 ($293-304) per tonne on November 29, up by ¥1,600-2,000 per tonne from ¥42,500-44,500 per tonne a week earlier.

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Sources told Fastmarkets the move was the latest steelmaker response to Chinese government controls on domestic crude steel output and the country’s  policy of “no new steel capacity” that has emerged in recent years.

The investment in the Sohar concentration plant amounts to more than $600 million so far and the facility is scheduled to commence operations by mid-2027, the steelmaker said.

Vale is investing $227 million to connect the concentration plant to its existing agglomeration facilities in Sohar, while Jinnan is investing about $400 million to build, own and operate the new facility.

The concentration plant will supply 12.60 million tonnes of high-grade concentrate annually for the production of pellets and briquettes – key raw materials for the manufacture of low-carbon steel products via the direct-reduction route.

“This partnership is a unique opportunity to blend Jinnan’s rich experiences in modern low-carbon steelmaking with Vale’s proven expertise in iron ore production,” Jinnan Iron & Steel Group chief executive Zhang Tianfu said. “By working together [with Vale] in Sohar, we aim to redefine steelmaking in the Middle East, [by] bringing efficiency and quality to the forefront.”

Vale president Gustavo Pimenta said the project would expand the Brazilian miner’s presence in the region.

“The Sohar concentration plant represents a key investment for Vale [because it] enhances our ability to meet the increasing global demand for high-grade iron ore and further build our presence in the Middle East,” Pimenta said.

Fastmarkets’ weekly iron ore DR-grade pellet premium indicator was calculated at $42-48 per tonne on October 23, unchanged from the previous week.

And Fastmarkets’ index for iron ore, 65% Fe Brazil-origin fines, cfr Qingdao, which has been used as the basis for DR pellet premium contracts since 2019, averaged $119.06 per tonne as of October 28, up from the September average of $106.79 per tonne given the slight improvement of Chinese mills’ margins.

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A trader in Japan told Fastmarkets that while some volumes from the Sohar concentration plant might go directly to Vale’s Oman pellet plant, the remainder was likely to be sold into the regional spot market.

And a Dubai-based trader said: “Some local pellet plants might be interested to see a new supplies of high-grade pellet feed [and] we’re waiting to see if there [will be an opportunity to] trade in the new pellet feed cargoes.”

Jinnan’s investment is the latest foray by a Chinese steelmaker into investing in low-carbon steelmaking capacity in the Middle East

In August 2022, Chinese companies Tianjin TEDA Investment Holding Group and Delong Steel Group New Tianjin Steel signed a strategic cooperation agreement to develop a 10 million tonnes per year electric-arc furnace (EAF) steel plant in Saudi Arabia, Fastmarkets understands.

And in May 2023, China’s Baoshan Iron & Steel announced plans to build its first overseas “green steel” plant, with a natural gas-powered direct-reduced iron (DRI)-based EAF, by the end of 2026.

Then, in June 2024, China’s Delong Steel announced that it would be working with Emirates Steel Arkan to build and operate a low-carbon raw materials production facility to support the local steel industry in the Middle East. 

The Middle East is rich in natural gas reserves but short on metallurgical coal and steel scrap resources, which makes it suitable for DRI-EAF steelmaking, leading to long-term demand for high-grade pellet feed to produce DR pellets.

Its natural gas reserves and renewable energy attracted Vale to link up with local authorities and other clients to invest in green briquette “megahubs” in Oman, Saudi Arabia and United Arab Emirates, to jointly produce hot briquetted iron (HBI) and steel products, with significantly reduced CO2 emissions, for the local and seaborne markets.

Follow the low-carbon steel discussion and keep up-to-date with the developments influencing the decarbonization of the steel industry. Visit our dedicated green steel insights hub here.

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After each compliance period, these firms can sell the unused certified emission allowances (CEA) or, if they exceed their limit, buy allowances to meet the benchmark.

ETS accounts for more than 40% the country’s total CO2 emissions, making China the world’s largest market in terms of the volumes of GHG emissions.

By the end of 2023, the ETS had facilitated a cumulative trade of 442 million tonnes of carbon emission allowances valued at about 24.92 billion yuan ($3.5 billion), according to official data released on July 30, 2024.

China’s carbon trading with CEA and CCER

China’s Ministry of Ecology and Environment issued a plan on September 8, 2024 and invited public feedback on the inclusion of three major carbon-emitting industries – steel, cement and electrolytic aluminium – into the carbon trading system.

The inclusion of these additional industries would extend the market’s coverage to about 60% of China’s total carbon emissions, the ministry said, adding that the plan is divided into two phases: the implementation phase from 2024 to 2026, and the improvement phase from 2027 onward.

A source said the newly included markets mark a significant step in expanding the world’s largest carbon trading program and helps boost market liquidity by increasing the number of participants.

“The market liquidity [in carbon emission trading] and traded price are key factors to encourage firms to focus on low-carbon technologies and investment,” a Shanghai-based industry analyst said.

For the newly added 1,500 firms in the steel, cement and electrolytic aluminum, the ETS will set a free CEA in the implementation phase based on carbon intensity benchmarks rather than absolute emissions, allowing them to familiarize themselves with market rules while improving their emissions management practices.

Beside the trading of CEA, the Chinese government also restarted the voluntary GHG emission reduction trading market, known as China Certified Emission Reduction (CCER), in January 2024. This market had been inactive since 2017 due to low trading volumes.

CCER is a certification granted to companies with voluntary carbon emission cut projects which can be traded in the market, yet key emitters are only allowed to use CCER to offset 5% of their total emissions.

In the steel industry, China’s Shougang Group announced the conclusion of a deal of nearly 1.49 million tonnes of CCER, with an average price of 96 yuan ($13) per tonne on September 8, marking the first deal in the country’s steel industry this year.

As of September 3, 31 CCER projects were made public.

What’s next for the steel industry

As China’s second-largest carbon emitter, the steel industry contributed over 15% of the country’s total carbon dioxide emissions in 2023, second only to power generation, sources told Fastmarkets.

In the first seven months of 2024, China produced 613.72 million tonnes of crude steel, with a year-on-year drop of 2.2%, data from National Bureau of Statistics show.

Several market participants said the free CEA in the implementation phase might ease the pressure from costs for steelmakers given their low margins in recent two years.

The carbon trading market is a mechanism which offers both incentives and constraints, and closely links carbon reduction with economic benefits, which means that steel companies can benefit from carbon reduction and reduce costs, an industry analyst in Beijing said.

Meanwhile, carbon finance products will provide more financing channels for enterprises and help reduce financial costs on the pathway to low-carbon transition, the analyst added.

But in the long-term, it will further encourage steelmakers to adopt low-carbon emission steelmaking processes and to apply high technology to offset the CEA cost, this source said.

The innovation and promotion of low-carbon technologies will play a more and more important role for the steel industry’s decarbonization transition, the analyst told Fastmarkets.

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Fastmarkets’ index for the iron ore 63% Fe Australia-origin lump ore premium, cfr Qingdao, tracks the spot prices of Australia-origin iron ore lumps in the CFR China spot market within the index specification range, including Pilbara Blend Lump and Newman Lump.

Following the consultation, Fastmarkets will amend the Fe base specification and name of the index to ensure that the index specification remains representative of the lump ore grade it seeks to reflect. The amendment is not expected to have any effect on the index price.

The amended specifications for the premium index will be as follows (changes in the premium index name and Fe content base):

MB-IRO-0010 Iron ore 62.5% Fe Australia-origin lump ore premium, cfr Qingdao, US cents per dmtu
Quality: Fe content base 62.5%, range 61-65%; silica base 3.5%, max 5%; alumina base 1.5%, max 2%; phosphorus base 0.08%, max 0.10%; sulfur base 0.02%, max 0.04%; loss on ignition (%DW) base 5%; moisture base 4%, max 6.5%; granularity max 13.5% <6.3mm, max 25% >31.5mm.
Quantity: Min 30,000 tonnes
Location: cfr Qingdao, normalized for any Chinese mainland seaport
Timing: Within 2-8 weeks
Unit: US cents per dmtu
Payment terms: Letters of Credit on sight, other terms normalized to base
Publication: Daily at 6:30pm Singapore time
Notes: Origin, Australia only. Data history from May 2013.

This index is part of the Fastmarkets steel raw materials prices package.

To provide feedback on this index, or if you would like to provide price information by becoming a data submitter to this index, please contact Alice Li by email at: pricing@fastmarkets.com. Please add the subject heading “FAO: Alice Li, re: Iron ore 63% Fe Australia-origin lump ore premium.”

Please indicate if comments are confidential. Fastmarkets will consider all comments received and will make comments not marked as confidential available upon request.

To see all Fastmarkets’ pricing methodology and specification documents, go to: https://www.fastmarkets.com/methodology.

The post Amendment to iron ore 63% Fe Australia-origin lump ore premium index specifications: pricing notice appeared first on Fastmarkets.

Fastmarkets proposes to amend the Fe base specification and index name of the index to ensure the index specification remains representative of the lump ore grade it seeks to reflect.

The proposed amendment is not anticipated to impact the index price level.

The proposed specifications for the premium index will be as follows (proposed change in the premium index name and Fe content base):

MB-IRO-0010 Iron ore 62.5% Fe Australia-origin lump ore premium, cfr Qingdao, US cents/dmtu
Quality: Fe content base 62.5%, range 61-65%; silica base 3.5%, max 5%; alumina base 1.5%, max 2%; phosphorus base 0.08%, max 0.10%; sulfur base 0.02%, max 0.04%; loss on ignition(%DW) base 5%; moisture base 4%, max 6.5%; granularity max 13.5%<6.3mm, max 25% >31.5mm
Quantity: Min 30,000 tonnes
Location: cfr Qingdao, normalized for any Chinese mainland seaport
Timing: Within 2-8 weeks
Unit: US cents/dmtu
Payment terms: Letters of Credit on sight, other terms normalized to base
Publication: Daily at 6:30pm Singapore time
Notes: Origin Australia only. Data history from May 2013

This index is part of the Fastmarkets steel raw materials prices package.

The consultation period for this proposed amendment starts on Tuesday August 13 and concludes on Friday September 13.

The proposed amendment of Fe base and index name will take place from Wednesday September 18, subject to the outcome of this consultation.

To provide feedback on this index or if you would like to provide price information by becoming a data submitter to this index, please contact Alice Li by email at: pricing@fastmarkets.com. Please add the subject heading “FAO: Alice Li, re: Iron ore 63% Fe Australia-origin lump ore premium.”

Please indicate if comments are confidential. Fastmarkets will consider all comments received and will make comments not marked as confidential available upon request.

To see all Fastmarkets pricing methodology and specification documents, go to https://www.fastmarkets.com/methodology.

The post Proposal to amend iron ore 63% Fe Australia-origin lump ore premium index specifications appeared first on Fastmarkets.

In addition, sustainability corporate reporting is recommended via the Global Reporting Initiative, the Corporations Act 2001, the ASX Corporate Governance Principles and Recommendations and the Task Force on Climate-Related Financial Disclosures.

Australia is also a member of the Sustainable Critical Minerals Alliance, whereby all member states voluntarily work on developing sustainable and inclusive mining practice. The Minerals Council of Australia similarly provides a framework for sustainable practice, which encourages adherence to the International Council on Mining and Metals’ 10 Principles of Sustainable Development.

Undoubtedly, the Australia’s ESG backdrop is convoluted and poses a challenge for corporations. Despite this, the mining industry remains central to Australia’s economy, accounting for 13.6% of total gross domestic product in 2023.

According to Australia’s Department of Industry, Science and Resources, commodity export earnings totaled A$400 billion ($260 billion) in the financial year 2023-2024, down from A$467 billion the previous year.

In the financial year 2024-2025, the department estimates revenue will slump to A$352 billion.

Iron ore, aluminium ores and concentrates, lithium and nickel are all key commodities to Australian industry – and many are also fundamental to the global energy transition.

In 2023, iron ore exports totaled A$136 billion, far and above the highest earner for Australia. Meanwhile, bauxite and alumina – the raw materials used to make aluminium – generated A$9.8 billion, the eleventh largest export that year.

Australia is also the world’s largest lithium producer with more than 50% of the world’s lithium on a lithium carbonate equivalent (LCE) basis produced in the country, primarily in the form of spodumene – the key raw material for the production of battery-grade lithium hydroxide and carbonate. But its dominance is being challenged by rising production in countries such as China.

In nickel, though Australia makes up only a small percentage of global refined nickel production as a whole, it is an important part of the class 1 nickel market where it accounts for around 9% of global production now that BHP has announced the suspension of its Australian operations.

Australia’s mining dilemma lies in how it can reconcile its commitment to ESG with the need to profit from its vast, rich resources, especially because new players – that hold promises of cheaper prices – threaten to overtake.

Iron ore giants Rio Tinto, BHP and FMG balance their ESG efforts with production ramp-ups

ESG strategies are becoming increasingly important, with higher standards required to successfully move toward net-zero greenhouse gas (GHG) emissions. But the challenge for major Australian iron ore miners lies in having to reduce their emissions while maintaining and ramping up production, sources told Fastmarkets.

Australia iron ore miners Rio Tinto and BHP share the ambition of net zero operational GHG emissions by 2050 (Scope 3). Rio Tinto aims for a 50% reduction in emissions in 2030 (Scope 1 and 2), while BHP has goals of cutting at least 30% by 2030. The third largest iron ore miner, Fortescue, has committed to eliminating approximately 90% of emissions by 2030 and aims to achieve net zero Scope 3 emissions in 2040.

But there is no single decarbonization pathway for Australia iron ore miners, especially given their ongoing brownfield and greenfield iron ore projects.

Renewable energy, either directly via on-site power plants or through purchasing power, electric mining vehicles and cooperating with steelmakers towards finding new steel making technology, are currently the main plans for decarbonization amongst Australian iron ore miners.

Unlike China’s decarbonization method of cutting crude steel output and restricting new steelmaking capacity, Australian iron ore miners are working to maintain or increase production in the short term, despite the potential of increasing ESG-related investment or cost.

For example, Rio Tinto, the largest iron ore miner in Australia is on track to advance the Pilbara mine replacement study, is set to make good progress on Rhodes Ridge pre-feasibility study that has a capacity of 40 million tonnes per year and is preparing to complete 70% of construction on the West Range mine, according to the company’s quarterly report released on July 16.

BHP also showed a strong iron ore performance in the 2024 financial year (July 2023-June 2024), delivering the second consecutive year of record production, according to the company’s year-end report published on June 30. BHP also increased its yearly iron ore shipment guidance to 255-265.5 million tonnes in the 2025 financial year, with a medium-term goal of increasing production by 17% to 305 million tonnes annually.

Another Australian mining giant, Fortescue, with annual iron ore production guidance of 192-197 million tonnes for the 2024 financial year, also started the new Iron Bridge mining project production and shipment in December 2023.

An Australian-based miner source told Fastmarkets that the cost of ESG plans would increase the overall capital intensity of projects, yet it appeared it was not currently calculated or directly reflected in the iron ore unit cash cost or pricing for major miners.

Some market participants added that despite the iron ore price dropping from $140 per tonne in January this year to $100-110 per tonne in July, major iron ore giants in the short term would keep current production levels steady to align with company objectives.

Australia iron ore giants have a lower cash cost compared to miners from other countries. Rio Tinto’s guidance for the 2024 calendar year Pilbara iron ore unit cash costs is $21.75-23.50 per tonne, and $17.40-18.90 per tonne by BHP’s 2024 financial year guidance, while Fortescue’s 2024 financial year cash cost guidance for hematite iron ore is $17-18 per tonne.

Iron ore prices declined gradually in 2024 amid sufficient seaborne supply and China’s soft demand. In addition, some market sources became increasingly more sensitive towards China’s stimulus measures and crude steel cut policy given the country’s decarbonization drive.

Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao, averaged $105.93 per tonne in July, down by 0.44% from $106.40 per tonne the prior month and down by 9.98% from May’s average of $117.68 per tonne.

Market turns away from Australian alumina amid fraught supply and lack of investment

Australia has arisen as a point of contention in the alumina market this year, with ESG the ever-present thread between a series of supply-side pressures.

In January, global aluminium producer Alcoa announced it would curtail its Kwinana Alumina Refinery in Western Australia (WA), citing high operating costs and challenging market conditions. In June, Kwinana officially stopped producing fresh tonnes, bringing an estimated 2.2 million tonnes out of the market annually.

Lost production from Kwinana’s shutdown will not be replaced by Alcoa within Australia.

“What you’re seeing is an aging asset base that requires a lot more capital – specifically sustaining capital to survive. That is getting harder to do, so you’re seeing more issues at refineries – things are breaking, more maintenance is required,” a market source recently told Fastmarkets.

The curtailment comes as Alcoa continues to produce lower grade bauxite at its WA operations and is expected to continue to do so until at least 2027.

Alcoa noted in its 2023 annual results that the production of lower grade bauxite led to a 13% drop in alumina production in 2023.

These raw material woes are part of the company’s long standing approval process for the development into new bauxite reserves. The state government officially granted its 2023-2027 Mining and Management Program (MMP) on December 14; however, Alcoa will need to reconcile with a range of stringent conditions addressing key environmental factors.

These include enhanced protections for drinking water, including increased distances from reservoirs, and biodiversity along with accelerated forest rehabilitation, as well as restrictions on the area permitted for clearing for mining in the Northern Jarrah Forest and an increase on the rate of rehabilitation.

The MMP remains subject to the WA Environmental Protection Authority (WA EPA) environmental assessment, which was confirmed on December 18.

The WA EPA finished their assessment of South32’s Worsley Alumina expansion to its operations on July 8, which determined that the Worsley Mine Development Project could commence in line with conditions that included limiting the clearing of native vegetation, ensuring no direct impact to threatened flora, limiting disturbance to local wildlife, among others.

In response, South32 stated in its fourth-quarter results on July 22 that “these conditions would “create significant operating challenges for Worsley Alumina and impact its long-term viability.”

Fastmarkets calculated its daily benchmark alumina index, fob Australia, at $487.36 per tonne on August 6, up by $136.83 per tonne (39%) from $350.53 per tonne on January 2.

An uptick in liquidity of other origin has been trading on the spot market this year, amid an insecurity of Australian supply following the curtailment of Kwinana, which was further exacerbated by Rio Tinto’s declaration of force majeure on third-party cargos due to a shortage of gas.

Expansion projects in Indonesia, Vietnam and India have further confirmed this trend away from Australia, easing some of its dominance in the market.

But with Australia still producing around 20 million tonnes of alumina per year, it remains to be seen when – or if – these countries can meet global demand.

Fastmarkets is proposing the launch of FOB Indonesia, Vietnam and India inferred indices for its Australian alumina index.

Australia’s lithium share narrowing

Australia is currently the world’s largest lithium producer due primarily to its large production and reserves of spodumene, a key feedstock for the production of battery-grade lithium salts, accounting for more than half of the world’s lithium supply.

Typically, Australian spodumene is exported from the country for refinement, primarily in China.

Spodumene produced in the country is often seen as the premium product within the market, due in part to the high ESG standards.

“Australian spodumene is typically our preference due to the good standards of reporting and transparency,” a consumer told Fastmarkets.

Despite this preference for spodumene from Australia among some consumers, Fastmarkets understands that others are looking to shift their reliance for spodumene from the country.

In recent years, production of spodumene in Brazil and China has increased, alongside significant capital investments into spodumene and lithium ore production in regions such as Africa.

This investment has primarily been driven by Chinese firms seeking alternative sources of material to reduce their reliance on Australian spodumene producers, with African spodumene typically transacting at lower levels compared to Australian and Brazilian cargos.

2023 and 2024 have been dominated by sharp declines in lithium prices globally, amid softer demand and improved supply globally, pressuring the margins of some producers within the country.

Spodumene prices have declined 30% since May 10, 2024, following a significant softening in the lithium salts prices. Compared to a year prior though, spodumene prices are currently down closer to 75%.

Amid the broader diversification in production of spodumene globally, as well as demand for materials that are produced in countries qualifying for the inflation reduction act regulations, companies have increased investment into the downstream processing of spodumene within Australia.

Major lithium producers Albemarle, Tianqi, SQM and Wesfarmers have all invested in conversion capacity within WA for spodumene, primarily into battery-grade lithium hydroxide.

But this also poses environmental challenges for producers with spodumene conversion producing significant tonnes of waste.

Grades of spodumene concentrate can vary significantly, but among Australian producers largely sit between 5-6%. This means, typically speaking, it takes around 7-8 tonnes of spodumene to produce 1 tonne of battery-grade lithium products.

The scale of the waste produced by this process means that companies often need to establish effective storage methods or find alternative uses for the waste product, such as in the construction sector for use in cement.

Strict rules around the storage and management of tailings in Australia can often impact the cost of production for producers in the country. This additional costs factors on top of already high labor and energy costs.

As a result, Australian producers typically sit at the higher end of the cost curve for lithium.

“In this current market, it’s hard to know where the floor in prices for spodumene will be because of the wide cost basis globally,” a lithium trader told Fastmarkets.

“However, it’s not hard to see that many of the Australian producers will struggle most in a low-price environment,” the trader added.

There are signs of some pressure already being felt within the market by producers.

As part of the company’s quarterly reporting on July 31, Albemarle announced that it would be halting construction of a third production line at its Kemerton lithium processing plant in Bunbury, WA, as well as placing its second production line on care and maintenance.

The company will continue to focus of the ramp-up and qualification of the first production line at the Kemerton plant.

These measures are part of a cost and operating structure review by the producer amid the current low-price environment.

But many other producers still remain competitive even at current prices, particularly on the spodumene side.

In their recent quarterly results, published on July 24, Australian spodumene producer Pilbara Minerals noted that their unit operating cost for the quarter was $591 per tonne on an FOB Australia basis.

Fastmarkets assessed the spodumene min 6% Li2O, spot price, cif China, at $850-880 per tonne on August 6, narrowing down from $850-900 per tonne the previous day.

And in battery-grade manganese sulfate, the economic and regulatory environment in Australia compared to China has stifled at least one new potential project in Australia, despite the incentives introduced by Western countries to promote the material’s production outside of China.

The supply of battery-grade manganese sulfate has been cited by market participants as a potential bottleneck for the transition to electric vehicles, with the overwhelming majority of the world’s battery-grade manganese sulfate production in China.

But in March, Peter Allen, the chief executive officer of Firebird Metals, which has manganese ore resources in Australia, told Fastmarkets that it was “logical” to process its ore into sulfate in China due to its cost benefits and regulatory environment.

Allen explained that the company considered producing sulfate in Australia, but that it did not find this prospect to be financially viable, and that China would also allow the company a quicker time to market, owing to a favorable regulatory perspective.

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The post Australian mining’s ESG conundrum appeared first on Fastmarkets.

There are challenges and opportunities in the transition to decarbonization from the customer perspective, he said.

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“There are challenges for steelmakers too, including supply-chain security, and [ways] to connect upstream raw materials to downstream end-users,” Leus said. “Mills are very sensitive to environmental data, but it’s also very important to understand the role and value of steel [as a] driver behind the demand for low-emissions steel.”

There are diverse drivers of this low-carbon steel demand, he said, including demand from the global clean energy transition in construction, battery electric vehicles and low-carbon buildings.

The key factor in the transition to net-zero, Leus said, is access to enough clean energy at affordable prices, while the market drivers for consumption of low emissions steel will include procurement for public projects, offtake agreements and green loans.

ArcelorMittal is committed to decarbonizing steel production, he added, and to achieving its net-zero carbon emissions target by 2050.

The company’s route toward decarbonization will combine the use of recycled steel with increased consumption of scrap, and direct-reduction iron in electric-arc furnaces, and the circular economy of carbon capture and storage or reuse (CCUS), as well as clean power in the direct reduction of iron.

ArcelorMittal is using the Xcarb brand to provide a broad range of low-carbon flat steel products for the downstream market, produced with recycled and renewably produced steel, paving the way for the use of DRI in the future.

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Crude steel output will be no higher than 30.58 million tonnes in 2024, according to the notice.

Fujian province, in southeastern China, produced 34.06 million tonnes of crude steel in 2023, ranking it tenth among the leading steel production hubs in China.

Output in the first five months of 2024 was about 14.64 million tonnes, up 23% year on year, according to data from the National Bureau of Statistics (NBS).

If the policy is implemented, crude steel production in 2024 will be 3.48 million tonnes lower than the previous year.

The most-affected steel mills will be those running blast furnaces (BFs) because of their high carbon emissions, according to market participants.

Electric-arc furnaces (EAFs) will be prioritized to ensure good production rates, according to the notice.

Production cuts considered by other Chinese provinces

Other larger production hubs, such as Shandong and Hebei provinces, published notices about reducing energy consumption and carbon emissions, and containing crude steel production early in 2024, but did not specify by how much production will reduce.

One trader based in Shanghai told Fastmarkets that production targets in Hebei province are expected to be lower than the annual production volumes in 2022, which were significantly lower than those in 2023.

“There is going to be stronger pressure on supply reduction in the second half of the year, given the tighter production targets,” an iron ore trader based in Beijing said. “Nonetheless, first-half 2024 production volumes have not been very high, so steelmakers technically have some flexibility in planning their production schedules.”

Magnitude of cut matters

“We are hearing some production-cut plans for the year [across Chinese regions], but the size of the cuts [for the whole country] remains unknown,” a steel industry analyst based in Hangzhou told Fastmarkets.

According to recent market speculation, the cuts could amount to around 20 million tonnes, according to the Hangzhou-based analyst. This compares with China’s 1.02 billion tonnes of crude steel output in 2023, so is unlikely to boost the steel market in the second half of the year.

But a production cut of just over 20 million tonnes is likely to hit prices of key steelmaking raw material iron ore. As a result, lower iron ore prices could pull prices for finished steel lower.

A larger cut – potentially doubled to 40 million tonnes – would flip the finished steel market into short supply. This would push prices for both steel and raw materials higher, according to the analyst.

But no matter the scale of the production cut, hot-rolled coil prices are likely to benefit because Hebei province, which is China’s biggest steel-producing province and accounts for the lion’s share of HRC capacity, will take a lead in reducing production, the Hangzhou-based analyst noted.

“HRC demand is less susceptible to seasonal factors. Besides, demand [for the flat steel product] is set to be underpinned by exports and a potential pick-up in infrastructure construction [following Beijing’s stimulus measures] in the remainder of the year, the analyst said.

“Resilient demand, coupled with a possible supply cut, will lower HRC inventories in the third quarter of the year and bolster prices in the second half of the year,” the analyst added.

Opinions in iron ore market divided

Most iron ore market participants adopted a wait-and-see attitude towards the news of Fujian province’s crude steel cut regulations, due to the lack of official announcements from other larger steelmaking hubs in China.

“The crude steel cut target started from Fujian province because its production in 2023 increased the most – up by 13.7% – and the 2024 crude steel cut amount as announced [for Fujian province] is actually a bit high,” a Beijing-based mill said.

Some market sources suggested that further crude steel production cut targets are likely to come from provinces that recorded relatively high year-on-year increases in production last year.

In 2023, the crude steel output in 11 provinces across China increased from the previous year by more than 500,000 tonnes per province. The largest volume increases were above 1 million tonnes per province, notably from Fujian, Inner Mongolia, Jiangsu, Anhui and Guangdong, according to NBS data.

Sentiment among market participants was not overly bearish in the iron ore derivatives market, despite expectations that the crude steel production cuts in the second half of the year would dampen iron ore demand.

“There hasn’t been any official file about crude steel target in Hebei province, or other large provinces. Most industry sources would prefer to wait for more announcements,” one mill source from Jiangsu province told Fastmarkets.

A Singapore-based trader noted that a few steel mills in Hebei province were heard to be conducting BF maintenance plans, while a large mill in Jiangsu province was maintaining normal production.

“The expected crude steel cut might be higher than the market expects given the Chinese government’s pressure from the decarbonization targets and continuous weak steelmaking margins in China,” the Singapore trader added.

“But in the short term, market participants will buy the crude steel cut story only when actual output starts to decline continuously,” a Shanghai-based analyst told Fastmarkets.

In May, China’s production of crude steel was 92.86 million tonnes, a year-on-year rise of 2.7% and the highest level since March 2023 when it was 95.73 million tonnes, according to the data from NBS.

In the first five months of 2024, China’s crude steel production totaled 438.61 million tonnes, down by 1.4% year on year.

Impact on coking coal market hard to predict in short term

Coking coal market participants suggested that the impact on the coking coal market was hard to predict at present.

“Currently, I don’t see any obvious impact in the near term,” one international trader based in Southern China told Fastmarkets.

“We originally expected the Chinese domestic coking coal market not to be strong in 2024 because of the abundant supply of the domestic and seaborne coking coal resource,” a trader based in Northern China said.

“Giving the situation that only Fujian province has set the goal [to cut crude steel production], it’s hard to predict any impact on the coking coal market without seeing other provinces that are production hubs of crude steel, such as Hebei and Shandong, set a goal ,” the Northern China-based trader source added.

Weaker H2 iron ore price outlook

The stricter production controls over steelmaking are expected to weigh on the raw material consumption of Chinese steelmakers, according to a trader in Xiamen.

Iron ore prices are likely to come under pressure from the weaker demand and it is anticipated that imports from Australia and Brazil will be higher toward the second half of the year.

“Iron ore inventories are at a two-year high with more cargoes expected to make landfall in the third quarter in line with an uptick in shipments from Australia,” a Singapore-based iron ore trader said. “A supply glut could crimp any potential upside in prices amid weaker consumption in the domestic portside market.”

Impact on ferro-alloys

Fujian’s steel production cut announcement will undoubtedly impose strain on Chinese steel demand and, in turn, negatively affect the upstream ferro-silicon market, according to market sources.

Ferro-silicon is mainly used in crude steel and magnesium production.

“The crude steel production decrease in 2024, not only in Fujian province but also other provinces, will make downstream steel buyers quite unlikely to make high offers to upstream ferro-alloys including ferro-silicon given the downward market,” one China-based ferro-silicon source told Fastmarkets.

“Maybe other provinces will release their own crude steel production cut plans later, which will further undermine the upstream ferro-silicon market participants’ confidence,” the source added.

“To my knowledge, domestic steel mills in China have already struggled with making low profits, and under these circumstances, many steel mills made cautious purchases on ferro-silicon. If there are more crude steel production cuts in other provinces, this could make ferro-silicon purchases even more watchful,” a second China-based ferro-silicon source said.

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Crude steel output adjustment to align with decarbonization and steel demand

In 2021 and 2022, the Chinese government required a year-on-year decrease in annual crude steel output to follow the country’s carbon peak and carbon neutrality goals.

But the official notice on April 3 focused on crude steel output adjustment for different steel mills to tackle the problem of low steel prices and demand, rather than directly reducing total volume, sources told Fastmarkets.

“The notice is a telling sign that the government aims to have detailed knowledge of the country’s steel capacity due to concerns on downstream steel demand and prepare to avoid any worse situation for steel mills in the rest of 2024,” a Xiamen-based trader said.

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China’s crude steel output decreased by 2.8% year on year to 1.035 billion tonnes in 2021 and by 1.64% year on year to 1.018 billion tonnes in 2022. In 2023, crude steel output was flat compared with 2022 volumes, according to data from the country’s National Bureau of Statistics (NBS).

The government will continue to focus on energy saving and reducing carbon emissions during the crude steel output adjustment to align with the country’s decarbonization targets.

The notice also proposed the new idea by supporting high-quality steelmaking companies and further cracking down on inefficient and illegal steelmaking capacities to adjust the annual crude steel output.

A few market sources said the NDRC announced detailed investigation of steelmaking facilities across the country, which might help create specific measures to cut production by shutting down specific facilities.

Shortly before the official notice, China’s Iron and Steel Association called on steel mills to reduce steel production to build a healthy fundamental supply and demand structure on March 28, due to repeated declines in steel consumption and prices by the property sector and the slow progress of infrastructure projects.

China’s crude steel output in January and February amounted to 167.96 million tonnes, up by 1.6% from 165.31 million tonnes in the first two months of 2023, according to NBS data.

Steel market participants doubtful about implementation

China’s domestic steel prices picked up after the NDRC’s notice, but market participants were not very bullish because they did not think steel mills would reduce production rates sharply in the short term.

For instance, Fastmarkets’ price assessment for steel reinforcing bar (rebar) domestic, ex-whs Eastern China was 3,360-3,380 yuan ($464-467) per tonne on Monday April 8 (the first working day after Tomb Sweeping Day break on April 4-6), up by 30 yuan per tonne from 3,330-3,350 yuan per tonne on April 3.

“Many steel mills running blast furnaces can make profits, so they don’t want to be the first to reduce production,” a Shanghai-based rebar trader said. A few of their suppliers were mills running electric-arc furnaces, and these mills were reducing production recently due to the loss in margins.

“If local governments don’t issue any notice to order steel mills to reduce production, [steel] supply might remain sufficient, and this would continue to put downward pressure on steel prices,” a second Shanghai-based rebar trader said.

Some sources in China’s finished steel market were skeptical about the support from the possible production cuts for finished steel product prices, believing that the cost of steelmaking raw materials – iron ore, coking coal, etc. – plays a more important role in supporting steel prices.

“Only a significant rally in prices for raw materials after the previous sharp decrease or a substantial pickup in steel demand could bolster spot steel prices,” a third steel trader in Shanghai said.

Demand for steelmaking raw materials could dampen in long term

Some market participants said that China’s crude steel production adjustment in 2024, or official signs of it, would finally dampen the demand and prices for steelmaking raw materials in the industry.

“The crude steel production cut would dampen prices for iron ore and coking coal, but the final impact would depend on the implementation [of production cuts] in the long term,” a mill source from southern China said.

A Beijing-based mill source said iron ore prices could fluctuate more because the crude steel production cut might either reduce demand for iron ore or increase mills’ capability in raw material procurement if the production cut helps bring decent steelmaking margins.

A few sources in China’s domestic coal market were bearish on coking coal prices after the notice, considering demand reduction, sources told Fastmarkets.

“China has not yet announced any specific plan, but Chinese steel mills and cokeries are cautious in raw material procurement because they expect further prices drop in the market,” a Beijing-based coal trader said.

Some steel mills in Hebei province and Tianjin city announced coke price cuts of 100-110 yuan per tonne from April 9. This was the eighth round of coke price reductions since January this year.

Several market sources said that the ninth round of coke price reductions could be possible if steel prices and demand remained weak in the short term.

Ferro-silicon and vanadium market participants, however, have shown little response to China’s annual crude steel production adjustment so far, sources said.

“Before the announcement [made on April 3], I suppose many ferro-silicon market participants already expected this year’s crude steel output would either be the same or lower than last year,” a China-based ferro-silicon trader source said.

“Undoubtedly, the crude steel output adjustment may give more bearish sentiments to the ferro-alloy markets, but it may take some time, at least for now, to reflect on ferro-alloy prices, because ferro-silicon and vanadium are the upstream raw materials [in the steel industry],” a second China-based ferro-silicon trader said.

“The crude steel output cut will inevitably reduce the demand for manganese ore and manganese alloys,” a manganese ore trader source in China said. “But the manganese market still has its cushion for it, being listed as one of the critical minerals and due to its increasingly diversified needs in other downstream industries.”

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China’s road to green buildings

With the new target, China expands its commitments to make the building and construction sector as green as possible due to increasing urbanization and the national “Dual Carbon” targets i.e. 2030 target for peak carbon emissions and full carbon neutrality by 2060.

Statistically, 77% of China’s new urban construction projects in 2020 were designated green buildings, according to government data.

Green buildings are buildings that provide energy savings, carbon emission reduction, healthy and environmental-friendly residential environments and comfortable utilization experiences throughout the entire lifecycle of the asset.

China’s National Green Building rating system (GBL) was established in 2006 with a three-star system to evaluate residential, commercial and public buildings.

In February 2022, the Ministry of Housing and Urban-Rural Development (MHURD) issue a further action plan called Building Energy Conservation and Green Building Development (2021–2025), mandating that all new urban buildings, by gross floor area, in China will be constructed in line with the green building standards by 2025.

According to the action plan, by 2025, the newly urban buildings with ultra-low carbon emission and energy consumption will have increased by 20 million square meters compared with 2023, and the renovated buildings with significant energy-saving capabilities will have increased by 200 million square meters.

Steel on the rise

Steel structures are widely used in the construction of public transit stations, shopping malls and factory buildings. This has been a key solution to meeting green steel construction targets in China, market participants said.

The raw materials of steel structures are mainly flat steel, section steel, fasteners, and stainless steel. Steel structures avoid using concrete, which is a major pollution source and energy consumer in China.

China’s steel structure consumption will reach 140 million tonnes by 2025, accounting for more than 15% of the country’s crude steel production, according to the 14th five-year plan and long-range objectives for the steel structure industry released by the China Steel Structure Association (CSSA).

China’s steel structure production was 101.8 million tonnes in 2022, with a year-on-year increase of 4.95%, accounting for 10.05% of the crude steel production, according to CSSA data.

The central government encourages enterprises to establish a quality control system for the entire lifecycle of production, construction and installation of prefabricated building components, and promotes on-site supervision of prefabricated building component manufacturing, according to the Outline for Building a Quality Strong Country published by the State Council in 2023.

“The development of steel structure contributes to the good demand for flat steel and section steel, but weakens the demand for rebar. This trend is likely to continue in the coming years,” a trader in Shanghai said.

Green steel is promoted yet awaits industry assessment standard

China’s 2021-2025 action plan for green buildings encourages the usage of low carbon emission and high-quality rebar, which is the dominant material for construction.

According to stipulations in the action plan, government-invested projects should predominantly use green steel for construction.

But the ambitious target to use more green construction steel products might take a longer period to achieve, sources told Fastmarkets.

China has been the largest crude steel producer in the world since 2003, but about 85% of its production is from blast furnace steelmaking process. This has made the country’s steel industry a major player in global decarbonization efforts, sources said.

In 2023, China produced 1.02 billion tonnes of crude steel in 2023, unchanged from 2022, according to data published by the country’s National Bureau of Statistics (NBS). The country’s output of finished steel was 1.36 billion tonnes in 2023, up by 5.2% year-on-year from 1.30 billion tonnes (adjusted from 1.34 billion tonnes).

Some Chinese steelmakers have been working to produce greener steel products by using new energy sources and increasing the ratio of high quality iron ore pellet and ferrous scrap in blast furnace steelmaking to meet the increasingly strict requirement from downstream steel markets like the automotive sector.

For example, Shougang Jingtang in north China’s Hebei province has hit 40% ferrous scrap utilization in its converters by preheating the raw material and has thereby reduced carbon emissions by 30% in its blast furnace-basic oxygen furnace (BF-BOF) steelmaking process.

A mill source in southern China said the first step for Chinese steel mills to develop low-carbon emission steel was to meet the ultra-low carbon emission steelmaking process requirement by the China Iron and Steel Association (CISA)

Since August 2020, CISA has carried out publicity work on ultra-low emission improvement and assessment for the country’s steelmakers in terms of the steelmaking process, with 129 steel mills passing the assessment as of March 10, 2024.

“China’s steel industry is still waiting for more detailed regulations or standard to define or provide certifications for ‘green steel’,” a Beijing-based mill source said.

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