- China has made strides in reducing pollution, but it still has a long way to go to meet World Health Organisation standards.
- CBA commodity analyst said this will see a continued shift towards high-quality energy inputs.
Chinese demand for high quality commodities will intensify in the coming years as authorities step up their efforts to reign in pollution, Commonwealth Banks says.
Earlier this month, China announced a new three-year anti-pollution plan from 2018-2020 — “Winning the Blue Sky War” — which replaced previous measures that expired last year.
“One key implication from the new plan is the increased usage of higher grade raw materials with fewer impurities to reduce emissions and boost productivity,” CBA commodity analyst Vivek Dhar said.
“While we have observed this trend acutely in iron ore markets over the last year, we expect that tone not only to deepen but to spread to other commodities too.”
For major cities, China has a pollution target of 60μg/m3 — a ratio of micro-grams (one-millionth of a gram) of polluted air particles per cubic metre of air.
Dhar said there’s been some notable improvements, with pollution levels in Beijing falling from 89.5 micro-grams per cubic metre to 58 — within the target range.
“However, with only 107 of China’s 338 major cities reaching the World Health Organisation’s (WHO) interim standard of 38μg/m3, plenty more work needs to be done,” Dhar said.
In addition, there isn’t a single major city in China which meets the WHO’s recommended level of 10 micro-grams per cubic metre.
Dhar said policy makers will now switch their focus from the Pearl River Delta region to the Fen-Wei Plains in Northern China.
“The change comes as air quality has worsened in the Fen-Wei Plains, reflecting the use of coal as energy and the prevalence of polluting heavy industries,” Dhar said.
“The 3-year action plan will also place a greater emphasis on reducing air pollution at the source. Heating, power, metals & mining and transport sectors are all areas of focus.”
Dhar said that will most likely lead to more disruptions in industrial production during the cooler winter months from September to March.
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