China to launch new round of environmental restrictions for autumn-winter

By IM Staff, Carrie Shi, Huaqing Fu
Published: Friday, 01 November 2019

The winter of 2019-20 will be the third consecutive year for production restrictions in China based on environmental inspections, with outputs to be curtailed for six months.

China’s central government is to continue its environmental efforts during the 2019-20 autumn-winter season to support the results achieved in the past two years. The regulations involved are likely to curtail industrial operations and to reduce production, as they have done previously.

Recently, the country’s Ministry of Environmental Protection issued a draft document for comments on air pollution controls during the autumn and winter months of 2019 and 2020 in Beijing, Tianjin, Hebei and nearby provinces. The controls will be imposed to deal with the heavy air pollution that is typical while coal-powered heating systems are in use.

Among the plans, China seeks further adjustments in industries that create the worst pollution, including steelmaking, construction materials, coking and chemicals.

Steel production curtailment, refractories facility upgrade

According to the draft document, steel production in provinces such as Hebei and Shanxi should be cut by 15.75 million tonnes before December 31 this year. Other measures such as shutting down and removing unqualified kilns in Henan, Hebei, Shandong and Shanxi provinces have been suggested.

In the construction materials industry, upgrades to equipment in refractory units are required to reduce the emission of polluted air and to enhance monitoring.

Coal-gas ovens should be replaced with units that burn natural gas to reduce the emission of carbon dioxide from coal-burning.

Some refractory producers moved to natural gas power around five years ago, and said that this regulation would probably be targeted on smaller factories.

Systems should be installed in calcining kilns used in refractory production to monitor their output of volatile organic chemicals (Vocs) and to control gas pollution. And these should be joined to a network monitored by the country’s Ministry of Ecology & Environment.

Refractory producers should ensure the correct running of automatic monitoring facilities and data transmission to the network, whether their units are working at normal production rates, or if production is cut or suspended, or in any other abnormal conditions.

A market source in China told Fastmarkets that any factories which adopt natural gas ovens and Vocs monitoring facilities will not be affected by the environmental regulations in the coming winter season.

The regulations imposed this year on provinces and cities in most of the northern part of China will be even stricter than before, considering that 2019-20 is a key stage for China’s "Blue Sky Protection Campaign" begun in July 2018. This is a three-year plan intended to curb environmental pollution and to improve the air quality in China.

Slow demand for refractory raw materials

As with the previous orders, the propositions for this year, although not imposing a blanket shutdown of all factories in the provinces and cities mentioned, will still have a significant effect on the output of the industries concerned.

Given that steel accounts for 60% of refractories applications, any curtailment of production in the steel industry will probably result in less demand for refractories. This in turn will generate changes in the supply and demand of refractory raw materials such as graphite, magnesia and refractory-grade bauxite and fused alumina.

Graphite, an upstream material of the refractory sector, has shown a downward price trend amid muted demand from the sector and a surge in imports of graphite materials.

Some graphite producers believe that the environmental inspections during autumn-winter will put pressure on downstream refractory production until the end of the China National Day holidays, which will run October 1-7, due to the Vocs controls, but the influence on production is unlikely to be any greater than was seen in the corresponding period last year.

Moreover, most bigger refractory producers made the move to natural gas power a few years ago, so the removal of coal-gas ovens should have little effect on overall refractory production.

The price of graphite flake, 94% C, -100 mesh (-194), fob China, was assessed by Fastmarkets at $540 per tonne on Thursday September 19, unchanged since August 22.

The price of magnesia, one of the key refractory raw materials, remained soft, falling in response to high stocks and recent sluggish demand from the downstream refractory sector. The restrictions in autumn-winter might continue to depress demand from refractory makers and put more pressure on magnesia prices.

Fastmarkets’ latest assessment of the spot price for magnesia, dead burned, 97.5% MgO, lump, fob China, was $550-650 per tonne on September 17, down from $600-700 per tonne one week earlier.

Elsewhere, in terms of refractory-grade bauxite and fused alumina, the picture was complicated. Given that Henan, Shandong and Shanxi provinces – which are the production hubs for refractory-grade bauxite and fused alumina - are also the major areas for the environmental restrictions, the production of refractory-grade bauxite and fused alumina will be influenced by the environmental rules.

Nevertheless, according to market participants, the risks to supply will have less effect on the price of the refractory-grade bauxite and fused alumina than in previous years, when demand was higher.

"In the winter season, the price might go up on the supply shortage. But weakening demand is another factor to consider in pricing. Clients’ acceptance of higher prices has yet to be seen," one fused alumina producer in Henan told Fastmarkets.

Fastmarkets’ fortnightly assessment of the price of bauxite, refractory-grade, 85%/2.0/3.15-3.2 (0-6mm), fob Xingang, was $380-390 per tonne on September 19, unchanged since late July.

And the fortnightly assessment of the price of alumina, fused brown, min 95% Al2O3, refractory sized (0-6mm), fob China, was $750-760 per tonne on September 19, unchanged from the previous assessment.