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China Doing “More With Less” In Steel And Plastics

Business, China, Company Strategy, Economics

By John Richardson

bags-2CHINA is still a poor country relative to the West and here is why:

  • Average per capita annual urban incomes in 2013 were just Rmb29547 ($4769), according to official government statistics.
  • Average per capita rural incomes were only $1276, again according to the government.
  • If you were on $4796 anywhere in the West, you would be on the bottom of the economic pile and would be on social benefits.

China is also a chronically polluted country.

Let us take the steel industry as one example of this, which is relevant to this blog post:

  • Seven of the 10 cities with the worst air pollution in China in the first half of  last year were located in Hebei province, including the steel-producing city of Tangshan, according to the Ministry of Environmental Protection.
  • Heavy metals such as cadmium, zinc, mercury, manganese, nickel and chromium can be emitted from steel furnaces in the form of dust, fumes or vapour. China’s Ministry of Agriculture estimates that 3.3 million hectares of arable land is contaminated and said that farming on land almost the size of Belgium has been stopped so that it can be “rehabilitated”.

And so doing “more with less” has become a priority.

Hence, in the case of steel, a big recycling industry is set to take off.

If done properly, this should  result in a cheaper supply of raw material steel for manufacturing industries.

The recycling industry will also create new economic opportunities for millions of people.

And, of course, if recycling is again done properly, it can help tackle the pollution crisis.

“China so far hasn’t recycled too many of its old cars, appliances or construction material for fresh use in steel, simply because it didn’t have many metallic objects idling around. But China’s breakneck growth in the past decade should mean more scrap is available,” writes the Wall Street Journal in this article.

And the WSJ adds that:

  • China last year boasted 127 million registered cars and trucks on its roads, from 27 million a decade ago.
  • By 2020, China’s total scrap supply will reach 200 million tons a year, or about a quarter of what the Chinese government thinks its peak steel consumption will be. Scrap accounted for just 18% of steel use last year.

We wonder how many CEOs of iron ore companies have built this particular demand destroyer into their estimates for growth in China over the next decade or more? We suspect very few, if any, as such variables are too complex, and too worrying, to sell to investors in iron ore – and any other industrial sector for that matter.

China is, as we said, a poor country and the polymers industry is also creating  a lot of recyclable material – along with, of course, an awful lot of pollution.

China has now surpassed the US to become the world’s largest trash producer, churning out more than 260 million tons a year. Beijing’s 20 million residents alone generate about 18,000 tons a day, most of which goes to landfills.

In 2013, it was already the case that 24.9 million metric tons of plastics were recycled in China by more than 10,000 companies.

This figure is sure to growth – quite probably exponentially – as China learns to do “more with less” in the polymers industry as well.

We shall track what this means for demand growth of “virgin” polymers – i.e. non-recycled material – over the coming months and years.

And we shall also highlight the opportunities, as well as the challenges, that this represents for both local and overseas polymer producers.