China has broken another emissions record ⁠— and it is good news for some Indian companies

• Latest estimates from the Rhodium Group say that the emissions of greenhouse gases from China crossed that of the world’s largest polluter, the United States, in 2019 itself.
• China curtailed its factories to cut back carbon emissions and despite that, its steel production broke a new record in April 2021.
• If the carbon emissions from China are already worse than developed economies, it could mean more production curbs in the country in the near future.
• That could result in higher prices for Indian steel makers who are trying to bridge the global supply gap.

Tata Steel, one of India’s top steel makers, has seen its profit balloon nearly eight times in the last one year, and its share price four times. The story is similar for many of its peers too.

The party in Indian metal stocks could continue if shareholders consider the estimated emissions from China. Latest estimates from the Rhodium Group, a think tank that watches China closely, says that the emissions of greenhouse gases from China crossed that of the world’s largest polluter, the United States, in 2019 itself.


Now, over the last one year, the US and Europe are in rebuilding mode as the global economy slowly opened up after the first wave of the COVID-19 pandemic subsided. At the same time, China curtailed its factories to cut back carbon emissions.

Tangshan, in China’s Hebei province, is a large hub that produces over 144 million tonnes of steel in a year. Beijing has ordered to bring that down by 30% to 50% and, then, extended the cut to the end of the year. When a major producer of steel cuts back output, others, outside of China, may gain from rising prices.

Despite that, China Iron & Steel Association (CISA) data showed that steel makers in China broke a new production record in April 2021. Every tonne of steel produced in 2018 emitted on average 1.85 tons of carbon dioxide according to an estimate from McKinsey, an international consulting firm.

If the carbon emissions from China are already worse than developed economies, it could mean more production curbs in the country in the near future. That could result in higher prices for Indian steel makers who are trying to bridge the global supply gap. “We estimate steel margins to peak in Jan-March 2022 and moderate to sustainable levels,” said a Kotak Institutional Equities report on Tata Steel dated May 7.

Shareholders of Tata Steel, which is up 300% in the last one year ⁠— and at an all-time high ⁠— may have more gains to look forward to. It is not just steel, China’s curbs on factories have helped makers of other miners and metal products too.


However, a word of caution is warranted. The same report shows that India, too, has seen a sharp rise in carbon emissions in recent years. The country had emitted more greenhouse gases than all of Europe at the end of 2019.

If that was the downside to the environment due to increased production of steel in India, the rising price of steel is a big blow for sectors like automobiles, infrastructure construction, and real estate, which buy steel in bulk.

Companies like Maruti Suzuki, Mahindra and Mahindra, and Tata Motors have already been squeezed between a fall in demand for cars and rising prices of key inputs. The cheer of a demand revival post the monsoon of 2020 was cut short by the second wave of the pandemic and the rising cost of making vehicles.

Any further rise, without the ability to hike the price of cars, may further squeeze profit margins. The same would hold true for makers of trucks and buses too.


Real estate developers in India have a similar problem. Rising prices of cement and steel over the last one year have compounded the problem. The increasing uncertainty over livelihoods and the future of industry and employment had already reduced the number of buyers in the market.

Companies like DLF, Godrej Properties and their peers may watch commodity prices closely in the days to come. “The sudden and continuous upsurge in prices of steel, cement and other key raw materials used in construction has massively increased the overall construction cost for developers. This is a huge burden for all players - but again, it is the smaller, cash-starved builders who are most affected,” Akash Pharande, Managing Director of Pune-based developer Pharande Spaces, said in a statement.

“Unchecked construction costs ultimately impact project deliveries and result in stalled projects in many cases… Developers are challenged to incorporate the additional construction costs without adding further to the burden of their customers,” he added.




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