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China's efforts to secure "blue skies" for the upcoming Winter Olympics will limit steel, zinc and aluminum production until March, but the effect will fade once the country's lockdown ends, Platts reported.
To improve air quality during the Beijing Winter Olympic and Paralympic Games scheduled for February 4 to March 13, China's Ministry of Ecology and Environment has included more cities in its annual winter anti-pollution campaign in September 2021. The host city of Zhangjiakou was subject to strict environmental regulations from October 1, 2021 to March 31, 2022, compared to 28 cities in the past few years. The provinces affected include Hebei, China's largest steel producer, as well as the coal mining hub of Shanxi and key aluminum producers Shandong and Henan.
As a result of pollution control orders, China's steel production fell by 6.8% and primary aluminum production by 4% in December 2021, according to the National Bureau of Statistics.
“I expect steel mills to be even slower this year,” Market Intelligence analyst Yao Shunyu said in an email. Hebei, which accounts for more than 20% of China's crude steel production, is expected to cut production by 20-30% from last year, Yao said.
The impact of the Olympic Games on supply will be short-lived and metals markets are already looking forward to the end of the Games when production is expected to recover.
After the Olympics, “we still need to get back to fundamental supply-demand,” said James Kahn, head of basic materials research Asia at UBS Investment Bank, in a webinar. The resumption of production is likely to be faster than the recovery in demand due to falling coal prices and a downturn in the real estate sector, Kan said.
“The contraction has already happened,” said Yao of Market Intelligence. Most steel mills in Hebei have been cutting production since September 2021, the analyst said, after the local government set a target to cut annual steel production by 21.7 million tons in August 2021, 8.7% lower than in 2020.
“Prices have pretty much already responded positively to the [Olympic] tensions,” Hansen said, adding that the long-term impact could be limited as China prepares for another round of stimulus that could help offset slowing demand. relates to real estate.
The impact of the Olympics on manufacturing in the long run will be negligible due to the larger forces at work in China's economy. The country's push for decarbonization and the energy crisis fueled by a months-long spike in coal prices are having a much bigger impact on industrial metals than the Olympics, Yao Wenyu, senior commodities strategist at ING Bank, said in an interview.
