Inner Mongolia Ordered to Slash Steel, Ferro-Alloy Capacity to Cut Emissions

Inner Mongolia is set to slash the region’s production capacity of steel, coking coal and ferro-alloys as part of a broader crackdown on emissions in energy-intensive industries by Beijing, which is aggressively pushing to fulfill its ambitious carbon reduction pledges.

Authorities have ordered 164 state-owned and private enterprises in the three industries in the Inner Mongolia autonomous region in northern China to cut their capacities through 2023, according to a notice from the region’s Department of Industry and Information Technology that was made public Tuesday.

The move targeting existing capacity came after the region banned new coking coal, steel and ferro-alloy projects as well as cryptocurrency mining last month as it aims to curb energy consumption by reining in power-guzzling industries. Inner Mongolia was criticized by China’s top economic planner in February for failing to control its energy consumption last year.

Beijing has set ambitious goals for reaching peak carbon emissions by 2030 and achieving carbon neutrality by 2060, the implications of which have rippled through the country’s energy sector.

“Reducing energy consumption is key to lowering emissions,” Li Xiaochen, a ferro-alloy analyst at SDIC Essence Futures Co. Ltd., told Caixin. “Inner Mongolia accounts for over one-third of China’s total ferro-alloy capacity, but its steel capacity makes up a marginal 3% of nationwide capacity.”

A total of 76 ferro-alloy manufacturers in Inner Mongolia are required to shutter 3.14 million tons of capacity by 2023, while nine steel mills, including state-owned Baotou Iron & Steel Group Co. Ltd., must eliminate some 6 million tons of capacity within the same time.

The relatively low cost of shutting down ferro-alloy manufacturing facilities and the simplicity of their operation made them a prime target for this round of crackdowns, said Li, adding that nearly half of the region’s ferro-alloy manufacturers have already been subject to production curbs.

However, the impact on the ferro-alloy industry could be mitigated due to its existing overcapacity problems. A report by Sinolink Securities Co. Ltd. showed that China has an annual production capacity of 16 million tons of silico-manganese, an ingredient in ferro-alloy, while demand stands at just 10 million tons a year.

The notice also orders 17 coking coal producers in the region to slash 17.05 million tons of capacity, and another 59 companies to wind down 4.18 million tons of calcium carbide capacity by 2023.

Contact reporter Lu Yutong (yutonglu@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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