Taiyuan Iron & Steel (Group) Co Ltd, also known as TISCO, is currently China’s second largest stainless steel producer. In first place is currently still the Tsingshan Group with a stainless steel production capacity of 10 million MT per year. But that is about to change dramatically.
18 million MT stainless steel annual output: World’s largest producer in planning
By 2023 Tisco and Baowu Steel Group plan to build a mega conglomerate with a total capacity of around 15 million metric tons of stainless steel. By 2025 the target is as high as 18 million MT. This would triple TISCO’s yearly output.
The privately owned Tsingshan Holding Group is the main competitor of TISCO and the state-owned Baowu Steel Group (Source).
TISCO is 51% owned by the Chinese state-owned Baowu Steel Group
With the acquisition of Taiyuan Iron & Steel, Baowu Group produced 115 million mt of crude steel in 2020, 21% more than the previous year. Baowu’s crude steel output accounted for 10.9% of China’s total crude steel output in 2020, up from 9.6% in 2019.
Crude steel output from the three largest private steel mills totaled 106 million tons in 2020, accounting for 10% of China’s total crude steel output, up from 9% in 2019 (Source).
China: consolidation measures at the world’s largest steel producer
The affiliation of TISCO with BAOWU, but also the announcement of a new mega-consortium for the production of stainless steel, is part of the consolidation measures China is seeking in the steel sector.
Because China has a problem. A huge problem with environmental and air pollution. Because just a few days ago, a production stop for steel was imposed in the Tangshan steel region (Source).
Then today another report from Reuters. Four Chinese (stainless) steel producers had disregarded the government’s instruction and simply continued to produce under high pressure.
China has pledged to cut its crude steel production in 2021 from last year’s record 1.06 billion tons to reduce carbon emissions. The steel sector accounts for 15% of China’s total emissions, surpassing all other production categories.
“Steel companies are the main body responsible for air pollution…(they) should not just focus on performance and leave pollution to local people,” said Huang Runqui, Minister of Ecology and Environment (MEE) (Source).
Emerging fear of overcapacity and cheap imports
That the immense output of Chinese steel and stainless steel is taken very seriously by the West, especially Europe and the United States, is well known. Section 232 tariffs in the USA and the EU Safeguard measures are aimed precisely at this scary Asian steel monster.
Carbon tariffs planned to protect the domestic steel industry
However, the so-called carbon tariffs have also been added. These are measures being planned by Western nations to impose further punitive tariffs on products from countries with high emissions and low environmental standards. And thus protect their domestic steel producers even more effectively. Which, due to a lack of government pressure and a lack of innovative spirit, are now having to run after the Asian steel manufacturers.
Is a flood of cheap Chinese stainless steel now coming?
And now the announcement by TISCO that it will triple stainless steel production by 2025 is naturally fueling concerns that the market will be flooded with cheap Chinese stainless steel.
At first glance, that seems logical. With the combined volumes of Tsingshan and TISCO, the Asians will reach over 25 million MT of annual production in the near future.
But if we take a look at the overall picture, things probably look different again.
- China plans to significantly reduce its steel production
- Overall, the steel sector is to be completely consolidated
- Air and environmental pollution is to be reduced, as it represents a serious problem for the Chinese state and its citizens.
- Western nations plan carbon tariffs to penalize dirty products and protect domestic industry
- A mega concern is planned with new plants from TISCO
- In the Tangshan steel region, there is an active crackdown on manufacturers with older, smaller and dirtier blast furnaces
- Chinese steelmakers are actively seeking new production sites in Africa
- Much of Tsingshan’s stainless steel is already produced in Indonesia
One opinion: The market regulates itself (with government help if necessary)
The market in China is far from saturated. Many other Asian countries are also on the upswing and developing very quickly. You only have to look at Indonesia, Malaysia or Vietnam to see this. The hunger for steel and stainless steel is enormous. And it will continue to grow.
Government serious about consolidation
In addition, the Chinese government seems to be getting serious with its consolidation measures in steel. TISCO and BAOWU will build the world’s most modern and therefore probably lowest-emission steel mills.
They will be supported by the government, which will actively withdraw old and environmentally harmful plants from service. By concentrating the new plants presumably in one place, unavoidable emissions will be removed from areas rich in population. And thus reduce overall air quality and pollution in China.
Chinese companies are looking for space for new steel mills abroad
Chinese steel companies are already looking for new locations for future mills. Africa in particular is in focus. This is a way to escape possible forced nationalization for once. But also to become “greener” with new mills and shut down old plants in China in the medium to long term.
China is pushing ahead with innovations in environmental protection
In addition, China is also pre-empting Western measures to intercept Chinese products at the border. For undeniably, the West is and remains the main target group for Chinese products and goods – and continues to have an immense need for them.
The market will regulate itself in the end
The market will take care of the rest itself. If the private steel sector in China does not adapt to the new conditions, it will have to pay the price at the latest at the borders of Europe and the USA. In turn, the West will have to be careful that its old and ailing steel mills are not finally left behind by Asia.
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