Will China’s anti-pollution drive hit iron ore?


UBS’s marvelously named Tom Price (pictured above on recent tour of the Pilbara) has a little note today measuring the impact on iron ore of Chinese authorities attempt to cure Beijing capital of air pollution.

China’s dilemma: tighter pollution controls vs. stable economic growth

Many expect the govt to manage pollution via steel production cuts, targeting the vast capacity of Hebei Province. Problem is, this new govt has other key objectives too: allow ‘market forces’ to deliver industry outcomes + support stable growth (GDP 7.5%yoy). While changes will probably be made to limit the impact of industry pollution, they are unlikely to come at a substantial cost to labour markets & general economic activity, in our view. It follows that the scale of policy risk to China’s steel & ore trades is limited.

Quantifying trade sensitivities to a cut in steel production

Looking only at Hebei Province (+190Mtpa crude steel output; quarter of China’s total), we quantify the maximum impact to the seaborne iron ore trade flows of a 50Mt cut to its steel production (25% cut)… such a cut would see imported ore demand collapse by 80Mt, almost doubling our current forecast trade surplus to 170Mt.

Big trouble for all concerned if it comes to pass (except for Beijing babies).


14 Responses to “ “Will China’s anti-pollution drive hit iron ore?”

  1. poida says:

    The consequences of infinite economic growth on a finite planet.

    • lloydie says:

      David Suzuki –

      “Conventional economics is inevitably destructive and unsustainable because it ignores nature’s services as ‘externalities’. But nature maintains the biosphere as a healthy place for animals like us. Growth is just a description of the state of a system, yet economists equate growth with progress as if growth is the very purpose of economics. So we fail to ask ‘how much is enough?’, ‘what is an economy for?’, ‘am I happier with all this stuff?’. Steady growth forever is an impossibility in a finite world and our world is defined by the biosphere, the zone of air, water and land where all life exists. Endless growth within the biosphere is like the goal of cancer within our body. We need to internalize the services of nature in an ecological economics system and work towards ‘steady state economics.’”

      • The Lorax says:

        IMO, economic growth shouldn’t even be measured let alone reported, and yet we obsess about it. Employment and hours worked are vastly more important measures.

        Above all an economy should provide meaningful work, food on the table and a roof over your head. Everything else is just a distraction.

        In Australia we pat ourselves on the back if we achieve 3% growth where 3.5% has come from population growth! Meanwhile we completely ignore the externalities of living in more crowded cities and towns.

      • flyingfox says:


        Thanks for that. Wasn’t aware of this quote. Made my day.

  2. 3d1k says:

    A range of measures to be explored, a couple of which may impact Hebei steel industry – from closure of most severe offenders to relocation to more efficient production less reliant on sintering by using higher grade IO.


    • The Lorax says:

      And where would that higher grade ore come from spuikbot?

    • lloydie says:

      In the first 11 months of 2013, China exported 56.97 million mt of finished steel, up 12 percent year on year. In the process they flooded international markets with cheap steel and generated zero profits and negative profits once financing income is stripped out. I don’t believe anyone wants China to make more steel, other than the steel makers themselves.

    • China-Bob says:

      I agree this is very positive for Australian / Brazilian IO. The low grade Chinese ore is very energy intensive to process so removing it from the mix is the best way to keep steel production up and bring pollution down. At the same time the move favors the bigger Chinese steel produces with all their bought-n-paid-for political power.

      Win-win …good news for Australia

      • notsofast says:


        I agree. Its good news for Australia.

        But it is also a positive for China and the world, because it is an early indication that China is bonafide about rebalancing.

        The other main aspects of rebalancing are going to take a little longer to see. That is a slow decrease in fixed asset investment and an increase in consumption spending. On the reducing fixed asset investment it is going to be a little hard to distinguish between 50% of GDP FAI in 2013 and the 47% of GDP FAI in 2014. Your are going to need a few years to see it clearly, with it falling 3-4% per year.

        The interesting question is what will China use to stimulate consumption. I’m thinking it might be cars, lots more cars, including lots of SUVs and even pickup trucks. And going with that will probably be an accelerated road/bridge building program. Indicating that Xi really is serious about the Chinese Dream.

    • oliver47 says:

      I see no reason for there to be any direct effect of China’s anti-pollution drive on demand for Australian iron ore. Steel-making is not the major cause of PM2.5, air-borne carcinogens, SOx & NOx in urban settings. Apart from the seasonal climatic influence, it is domestically -sourced (ie Chinese) coal burnt by general industry, municipal central heating and power stations and diesel-fueled vehicles, which cause most air quality problems.

      • 3d1k says:

        I tend too to think it’s a wait and see. As you note many factors impact air quality, steel production being just one. It may prove useful to authorities to place some emphasis on the steel sector as the pall from emissions is so visible (as opposed to other emissions) and timely in the effort to restructure inefficient steel producers – although I recently saw that new production facilities were outpacing removal of old!