(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, March 8 "We will make our skies blue
That was the rallying call issued by Chinese Premier Li
Keqiang at the start of the country's annual meeting of
Any lingering doubts that air pollution has moved to the
very top of Beijing's political agenda should be dispelled.
Targets have been set to reduce pollution in Beijing and
Tianjin as well as 26 other cities in the provinces of Hebei,
Shanxi, Shandong and Henan.
Detailed instructions have been issued for everything from
installing monitoring stations for car emissions at heavily used
junctions to "boiler remediation", including the elimination of
all coal-fired stoves.
Compliance is mandatory, Chinese style.
"Officials who do a poor job in enforcing the law, knowingly
allow environmental violations, or respond inadequately to
worsening air quality will be held accountable," Li warned.
In essence, the ambition is to eliminate coal usage in the
"2+26" cities and dramatically cut the emission of just about
every other pollutant.
One component of "The 2017 Work Plan for the Prevention and
Control of Air Pollution" has already sent the aluminium price
soaring as analysts try to work out the implications of enforced
capacity cuts over the winter heating period, which runs from
mid-November to mid-March.
But the potential disruptive effects of Beijing's full-out
war on pollution will run the gamut of the industrial metals
China has spent decades building its industrial production
capacity. Pollution now trumps that policy and the resulting
flow-through impacts will affect pretty much everything, not
just in the "2+26" cities.
Coal, steel and aluminium have grabbed the immediate
headlines resonating from Li's "blue skies" speech.
In the case of the first two, the pollution drive will
dovetail with existing policies aimed at reducing excess
The official target is to cut steel capacity by 50 million
tonnes and coal by 150 million tonnes this year as part of a
five-year target of eliminating around 150 million and 800
million of capacity respectively.
A new order that steel production-hub cities such as
Shijiazhuang, Tangshan, Handan and Anyang halve capacity over
the winter heating season will accelerate that drive.
Indeed, "resolving" excess steel capacity in the "2+26"
cities comes first on the list of measures in the "Work Plan".
Second is the banning of all illegal "small, scattered,
chaotic, polluted" plants in industries as diverse as metals
fabrication and furniture manufacture.
In China's steel sector this means tracking down and
eliminating small scrap operators, using induction furnaces.
Most of these exist off the official radar so we don't know how
much they produce, but 13 cities are tasked with banning them by
October with the rest committed to removing half by then.
By all means necessary, it seems, since the policy document
envisages both the physical demolition of plants and the cutting
of water and power supplies.
Where steel leads, aluminium might well follow.
Although the new directive stipulates capacity reductions
only over the winter heating season, the extra costs may mean
some older, higher-cost capacity closing permanently.
As with steel, this would have the added benefit of
alleviating international pressure on China to reduce excess
capacity and high export flows.
The most recent measures, however, mark no more than an
acceleration of an anti-pollution drive that has been quietly
gaining momentum for many months.
An ongoing visit by environmental inspectors to Sichuan, for
example, has resulted in the suspension of all lead-zinc mines,
two zinc smelters, several silicon producers and a variety of
aluminium product operators, according to Shanghai Metals Market
(SMM), a Chinese news provider.
Last month's visit to Henan caused the closure of all
secondary lead producers and the partial suspension of
operations at primary lead producers and battery manufacturers.
Another environmental audit in Hebei has hit both copper
scrap processors and product manufacturers and zinc-steel
SMM's snapshots delineate the ever-widening dragnet being
used by Beijing to eliminate the excesses of past
The effects on international markets and pricing may not
always be as obvious as the aluminium and steel capacity
But they are increasingly affecting narratives.
Take iron ore, for example. With the spot price now back
above $90 per tonne, focus has once again turned to the
potential for production restarts, particularly in China itself.
Simple economics would suggest that smaller-scale, privately
owned operators ramp back up to reap the benefits of a
But stricter and more regular environmental checks and the
costs of complying with new anti-pollution measures mean that
price alone is no longer the key determinant of restarts.
It's a similar tale in zinc, where the combination of higher
pricing and a squeeze on raw materials would in the past have
guaranteed the swift reactivation of Chinese "swing" mines, many
of them also small and privately owned.
This time, though, they too will have to make sure they tick
all the boxes required by Beijing's pollution police, an added
cost that can no longer be negotiated with local officials.
All the local environmental audit teams have been disbanded
and, as the "2+26" city directive warns, if any local official,
department or government is found wanting in anti-pollutant
enthusiasm, "suggestions for accountability should be made".
RED FLAGS, BLUE SKIES
The war on pollution will affect all parts of China's
massive industrial materials sector.
But it's the upstream impacts that are most pertinent in
terms of supply-demand dynamics and pricing.
The country may be the world's largest buyer of industrial
metals but it is also a major producer.
A dominant producer in sectors such as steel and aluminium,
where the shockwaves still travel down the global supply chain.
And a "swing" producer in markets such as zinc, copper and
iron ore, where China's unregulated small-scale mine sector has
played a key, albeit poorly visible, balancing role in the past.
That's starting to change and the transformation will not
stop until the skies over Beijing are blue, and not just when
the National People's Congress meets.
(Editing by Dale Hudson)