Five challenges in China’s journey toward sustainable ferro-alloys

Underdeveloped renewable energy facilities in China, difficulty in generating green power during cold weather, and weaker ferro-alloys exports from the country are some of the obstacles in the adoption of green ferro-alloys premiums, sources said.

But there are feasible solutions to promote green ferro-alloys production and green premiums in China, including accelerating the replacement of older ferro-alloy production capacity and increasing green energy usage in newly installed facilities at major production hubs, multiple sources said at the conference.

The production of ferro-alloys consumes a lot of energy and usually relies on coal, which can be highly polluting. Also, power costs constitute a large proportion of overall output costs. The green ferro-alloys industry intends to produce the material competitively with less energy and lower coke consumption.

In 2024, the Inner Mongolia Autonomous Region started requiring all highly energy-consuming ferro-alloys production capacity in the region to be shut down to promote industrial structure optimization and adjustment, sources told Fastmarkets.

Inner Mongolia also issued a notice in August 2023 on “Policies and measures to promote the high-quality development of the ferro-alloy industry,” which states that ferro-alloys producers must gradually increase their percentage of green power consumption and that production facilities that use at least 60% of green energy are not required to undergo mandatory capacity replacement.

Inner Mongolia is the biggest ferro-alloys production hub in China, with a total of 140 million tonnes of ferro-alloys output in 2023, accounting for almost 30% of overall production in the country.

“The more that [older] ferro-alloy production capacity in production hubs is eliminated, the higher the proportion of green energy usage will be,” a ferro-alloys trader told Fastmarkets at the conference. “And many provinces also announced [rules] to increase green power usage in adding new ferro-alloys production capacity, which will increase the overall renewable power application in the next couple of years.”

Accelerating the adoption of green steel premiums in the whole industry would add some momentum to the proliferation and acceptance of green ferro-alloys premiums, Fastmarkets heard.

“By the time ferro-alloys producers in China, or even around the globe, widely adopt green power, the green ferro-alloys premium will be accepted and will also be very meaningful in the ferro-alloys industry,” the trader said.

Fastmarkets’ green ferro-alloy prices in China consist of:

Weekly green ferro-chrome differential, ddp China, yuan per tonne
Weekly inferred green ferro-chrome prices, ddp China, yuan per tonne
Weekly green ferro-manganese differential, in-whs China, yuan per tonne
Weekly inferred green ferro-manganese prices, in-whs China, yuan per tonne

But some obstacles remain in the way of a large-scale uptake of green ferro-alloys and their premiums.

These include:

Underdeveloped green power facilities, peak-regulation capabilities

Renewable energy facilities and their peak-regulation capabilities — that is, their process of balancing power supply with the load on the power grid during peak and off-peak hours — are not mature enough to meet the requirements of the fast-growing green ferro-alloys industry, sources said.

Green power supply is volatile, intermittent and random, which may pose a big challenge to ferro-alloys production in Northwestern China and to green ferro-alloys premiums, a ferro-alloys source told Fastmarkets at the conference.

“Green power supply may not be able to provide enough stable power for ferro-alloys producers in Northwest China in the winter or in extreme weather conditions because green [energy in the region] mainly comes from wind, solar and photovoltaic power,” the source said.

Green steel premiums yet to be widely accepted

Green steel premiums are not yet widely accepted in the market, which may limit green ferro-alloys premiums since downstream demand for ferro-alloys comes from the steelmaking industry, Fastmarkets heard at the conference.

“Even though many steel mills are embarking on the decarbonization journey, I have heard that not many steel mills accept the green steel premium since it would be an increase over the non-premium steel price, and the steel market has [performed] quite poorly this year,” a second ferro-alloys source said.

“If downstream steel mills still [resist] accepting the green steel premium, how can we expect ferro-alloys buyers to adopt the green ferro-alloys premium? I suppose it may take quite some time for the whole steelmaking industry supply chain to adopt the green premiums,” the source added.

Fewer ferro-alloys exports to Europe, US

Chinese exports of ferro-alloys to Europe or the US have decreased in recent years due to anti-dumping duties enforced in those regions, which makes it less compelling to advocate for green ferro-alloys premiums, sources said at the conference.

“Despite the fact that European buyers are more concerned about whether the ferro-alloys they buy are green or low-carbon, there is one thing that cannot be ignored — not so many Chinese ferro-alloys products are being exported overseas now. Most Chinese ferro-alloys are consumed by domestic steel mills in China,” the second ferro-alloys source said.

“There is only one country that China sells ferro-alloys to, which is India. It now has a fast-growing demand for steel and ferro-alloys, but there is still a very long way for India to go green,” a third ferro-alloys source said at the conference.

Different scale, production technologies among Chinese ferro-alloys producers

China’s ferro-alloys facilities are largely scattered across several locations and production hubs, with different scales of production and technical specifications, making it quite difficult for Chinese producers to achieve a unified technological progress in terms of increasing the proportion of renewable energy usage, Fastmarkets heard at the conference.

“In the ferro-alloys industry, the leading ferro-alloys producers only make up a relatively small proportion of overall production. As a result, the green transformation – the adoption of green power supply among leading producers – will not have a big effect on the ferro-alloys industry as a whole,” a fourth ferro-alloys source told Fastmarkets.

Green power still uncompetitive despite low-cost advantage

Issues in the renewable energy supply, such as its volatility and intermittency, have prevented it from being scaled up in China in the medium and long term, so green power’s low-cost advantage has not been enough to compete with traditional fossil power sources, such as coal, sources said.

“Admittedly, green power costs are not as high as traditional fossil power costs, which could reduce overall costs in the production of ferro-alloys,” a fifth ferro-alloys source said at the conference. “But if you do the math, the utilization rate of green power is rather lower than traditional power like coal, especially in cold weather in Northwest China.”

“So far, the low-cost advantage has not been that evident or cost-efficient enough to make me adopt green power and the green ferro-alloys premium. Maybe it will still take time to promote green power and the green ferro-alloys premium and for ferro-alloys producers to accept them in light of all the obstacles in the way,” the source added.

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