The country’s strong steel demand will result in increased demand for high-grade iron ore, including pellet, concentrate, lump and high-grade fines, due to their lower impurities, higher productivity and lower emissions.

Chinese steelmakers are continuing with government’s plans for ultralow emissions in the range of other pollutants, such as sulfur dioxide and nitrogen oxide. The government suggests about 560Mt of crude steel production capacity needs to meet the ultralow standard by the end of 2022, but only 25% have currently been upgraded.

The new 2030 guidelines are more practical than the previous draft and provides additional time for steelmakers to upgrade their equipment and allows for economic growth.

China’s government encourages steel plants to increase the pellet ratio in BF charge to 30% by 2025, up from a current 17%, to lower the industry’s environmental impact. AME estimates that BF pellet demand will increase to 222Mt in 2022, remaining flat year on year, and grow slightly to ~240Mt by 2024 and then holding at this level long term.

AME estimates that a total of 380–400Mt pellet is required to meet the 30% target if pig iron production is maintained at around 800Mt.

However, AME estimates that it will be difficult to achieve this target. During the past production restrictions in China, the government limited blast furnace production, but it did not limit the total crude steel output before 2021. Therefore, some steel mills could increase production by using high-quality raw materials.

Since 2021, cost reduction has become a key factor for steel mills to increase profits as China’s government set production output curb, which seriously impacts the high-cost of pellets and lump ore demand and premium.

China sets a target to increase scrap steel for recycling to 320Mt by 2025, up from 230Mt in 2021. It will significantly promote the development of electric arc furnace-based steelmaking in the country. This would also replace ~10% of the pig iron produced in blast furnaces by 2025, and much more by 2030. By replacing 40% of the oldest existing BF-BOF capacity with brand new capacity, the capacity swap scheme risks creating stranded assets.

MIIT also released the targets of crude steel produced via EAF will exceed 15% by 2025 and 20% by 2030% to aid China’s goal of decarbonizing the steel industry. AME estimates that the proportion of EAF-produced crude steel was ~11% in 2021.

The industry has recognized that DRI is one of the key methods to achieve this target. China will commence production from new H2-DRI projects with combined capacity of 8.2Mtpa between 2021 and 2025. The fraction of H2-DRI-EAF steelmaking will remain small and grow incrementally from 2030. Many steel companies, including Baowu Steel and HBIS, set targets to realize this by 2050.

The Baowu group is aiming to reduce carbon intensity of their steelmaking by 30% from 2020 to 2035 and achieve carbon neutrality by 2050. Baowu’s EAF steel mills account for 6.5% of its production. Therefore, decarbonising blast furnaces through carbon capture will be crucial, particularly in the next two decades.

Baosteel’s subsidiary Baoshan Iron and Steel has commenced construction of a H2-DRI plant at Zhanjiang Iron and steel in Zhanjiang. The DRI plant will have 1Mt capacity and be equipped with state-of-the-art technology including systems for loading and unloading of raw materials.

Further equipment includes a system for cooling products, a water treatment plant, and a dust removal system. Once commissioned the new facility is expected to reduce annual CO2 emissions by 500kt. Total investment of the project is US$300m with operations expected to begin in late 2023.

HBIS Group announced it will promote and develop 3.6Mtpa hydrogen based steelmaking projects by 2025. The company said that the world’s first hydrogen-based DRI plant with an annual output of 1.2Mtpa in Zhangjiakou City, Hebei Province is under construction.

The plant’s CO2 emissions will be reduced by 40-60% compared with those of traditional BF/BOF processes. The first stage of 600kt is planned to start operation in 2022. After completion, it will be the world's first industrialised production plant using hydrogen-rich gas to produce DRI.

The second stage, producing an additional 600kt, will use hydrogen as reducing gas generated by electrolysing water using wind energy, solar energy and other renewable energy sources, enabling non-fossil fuel base smelting.