China, the world’s largest steel producer and emitter of greenhouse gases, appears poised to fall short of its year-end target for increasing the production of eco-friendly steel. The slowdown stems from decreased utilization rates of cleaner electric-arc furnaces (EAFs) and the persistent downturn in the property market, impacting both demand and steel prices.
China’s ambitious climate goals include a significant reduction in carbon emissions, with a specific target for EAFs to contribute over 15% of total steel output by the end of 2025. This initiative is part of a broader strategy to decarbonize heavy industries while simultaneously bolstering the country’s economic growth amidst a slowdown.
However, recent data paints a concerning picture. According to Fubao Information, a Shanghai-based data provider, the average operating rate for EAFs in 2024 was just 49%, a significant drop from 54% in 2023 and the lowest since 2021. EAFs, which recycle scrap steel and avoid the use of coal, are crucial to achieving greener steel production. This decline indicates a significant hurdle in meeting the 2025 target.
Analysts attribute the underperformance to several factors. “It is certain that the 15% target is going to be missed,” stated Xu Xiangchun, an analyst at Mysteel Global in Beijing. He highlighted the ample EAF capacity, but pointed to “sluggish sales and plunging prices” leading to production cuts, particularly affecting construction steel, the primary output of EAFs.
The ongoing real estate crisis in China is a major contributor to the declining steel demand. The slump in property prices and the surplus of unsold properties have created a significant headwind for the steel industry, depressing prices and prompting concerns from major steel producers. This weakened demand directly impacts the viability of operating EAFs at higher capacity.
Estimates from the World Steel Association placed the EAF contribution to China’s total steel production at 9.9% in 2023. Florence Sun, a strategist at Macquarie Group, suggests the 2024 figure likely fell below that mark, emphasizing the ambitious nature of the 2025 target.
While EAFs offer a significantly less polluting alternative to traditional coal-fired blast furnaces that dominate China’s steel sector, achieving the 15% target faces significant challenges. Despite the current setbacks, some analysts remain optimistic about future progress. Jiang Mengtian, an analyst at Horizon Insights, anticipates improvement throughout 2025, driven by the country’s commitment to decarbonization. The transition to greener steel production is a complex undertaking, influenced by a range of economic and policy factors.
China’s struggle to meet its green steel target underscores the challenges inherent in balancing ambitious environmental goals with economic realities. The interplay between the real estate market downturn, fluctuating steel prices, and the utilization of cleaner technologies will continue to shape the future of China’s steel industry and its progress toward a more sustainable future. The success of China’s decarbonization efforts in the steel sector holds significant implications for global climate change mitigation efforts.
