Analysis of the Past and Future Trends of Energy Use in Key Medium- and Large-Sized Chinese Steel Enterprises, 2000-2030

The iron and steel industry is one of the most energy-intensive and polluting industries in China. This industry accounted for approximately 27% of China’s primary energy use for the manufacturing industry in 2010. Also, China’s steel production represented around 47% of the world steel production that year. Hence, reducing energy use and air pollutant emissions from the Chinese steel industry not only has significant implications for China but also for the entire world. For this reason, it is crucial and it is the aim of this study to analyze influential factors that affected the energy use of the steel industry in the past in order to try to quantify the likely effect of those factors in the future.

This study first analyzes energy use trends since 2000 of China’s key medium- and large-sized steel enterprises and also makes projections for energy use and production up to 2030 for the key medium- and large enterprises. The study then uses a refined Logarithmic Mean Divisia Index (LMDI) decomposition analysis to quantify the effects of various factors in shaping energy consumption trends in the past and in the near future. Throughout this report all of the data presented are for the key medium- and large-sized steel enterprises unless noted otherwise.

The result of our forecast shows that although under all scenarios the total annual crude steel production of key Chinese steel enterprises (and most likely entire Chinese steel industry) is assumed to peak in 2030, the total final energy use of the key Chinese steel enterprises peaks earlier, i.e. in year 2020 under scenario 1 and scenario 2 and in 2015 under scenario 3.

The retrospective decomposition analysis shows that energy intensity reduction was almost the only reason for reduced final energy use in key Chinese steel enterprises between 2000 and 2010. The structural (activity share of each process route [BF-BOF or EAF route]) effect and the pig iron ratio (the ratio of pig iron used as feedstock in each process route) effect played a minor role and even increased the energy demand during this period.

The three scenarios produced for the forward-looking (prospective) decomposition analysis for 2010-2030 show that contrary to the experience during the 10th and 11th Five Year Plan (FYP) periods, the structural effect is expected to be negative (i.e. reducing final energy use) and play an important role during 2010-2030 because of increases in the electric arc furnace (EAF) share of steel production in this period. Similarly, the pig iron ratio effect will play an influential role and reduces the final energy use of key steel enterprises because of the reduction in the share of pig iron used as a feedstock in EAF steel production during this period. The magnitude of the structural effect and pig iron ratio effect varies across the scenarios, with scenario 3 having the largest structural effect and pig iron ratio effect because of the assumption of higher EAF steel production and lower pig iron use in EAFs in this scenario.

The intensity effect plays the most significant role in reducing final energy use of steel manufacturing during 2010-2030. This is primarily because of the assumption for energy intensities for production processes in 2020 and 2030. While the realization of such energy intensity reduction is uncertain and remains to be seen in the future, the aggressive policies of the Chinese government to reduce the energy use per unit of product of the energy intensive sectors, especially the steel sector, are a promising sign that the Chinese steel industry is moving towards those energy intensity targets.