Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

China’s Henan provinces has decided to impose differentiated power and water tariffs on steelmakers who are yet to comply with ultra-low emission norms on a trial basis.


To reduce air pollution, Henan’s environment department and Development and Reform Commission has piloted a policy which levies additional charge on hydropower tariffs for steel and cement enterprises in the province. Mills producing steel with ultra-low emission technologies will be exempt from these surcharges while others will have to purchase water and electricity at a higher price, effective Aug 1. 


Henan province had adopted an action plan for the transformation of its iron and steel Industry in 2018. To reduce China’s increasing steel overcapacity and lack of technology adoption, steelmakers were directed to transform their operations and systematically cut capacity. Authorities also shut down many unaccounted rudimentary steel enterprises on quality concerns and have stopped giving permission for any new steel or coking coal capacity addition in the province till the end of 2020. The plan promotes the adoption of ultra-low emission technologies, creation of industrial value chain and enforces treatment of waste water and reduction of pollutant discharge. 


As a part of these reforms, Henan’s major steelmaker Anyang completed the integration of 11 steel enterprises into 4. These less efficient and high emissions assets will be transformed to advanced steel producers by 2025. Beside Anyang, Henan is also home to major steelmakers Jiyuan Iron and Steel, and Wuyang Iron and Steel.


Although, a pilot project, this policy could impact steel production and prices atleast in the province and the nearby region, and could squeeze steel mills margins in an already competitive market. Over the long term, the policy affirms China’s intent to increase the efficiency and decrease the environmental impact of its steel industry and signals the authorities seriousness in pushing non-compliant mills to transform at a faster pace.   


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