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24 Oct 2025

China's ferro alloy sector faces major green overhaul

China's ferro alloy industry, a key supplier to the world's largest steel sector, is preparing for a major green transformation following a high-level Communist Party meeting that prioritized environmental sustainability and high-quality development, according to industry participants.

The communique from the Fourth Plenary Session of the 20th Central Committee held in Beijing this week reinforced the government’s commitment to "comprehensively advancing the green transformation of economic and social development, guiding by carbon peaking and carbon neutrality targets.”

For the energy-intensive ferro alloy sector, which produces essential ingredients like ferro silicon, silico manganese and ferro chrome for steelmaking, this signals an era of accelerated consolidation and stricter environmental enforcement.

"The plenum's directive is a clear policy signal. Local governments will now double down on shutting down small, inefficient ferro alloy furnaces and pushing for upgrades in larger facilities," a ferro alloy analyst of a securities company said. "The era of lax environmental standards for this sector is over."

The ferro alloy industry is a significant contributor to China's carbon emissions due to its reliance on coal-fired power plants and outdated submerged arc furnaces. The government's focus, as outlined in the plenum, aligns with its broader "dual carbon" goals of peaking carbon emissions before 2030 and achieving carbon neutrality before 2060.

China's ferro alloys industry is bracing for a wave of consolidation, higher costs and supply chain volatility, industry analysts said, amid the country’s push for green steel.

The most immediate impact will be stricter enforcement of "capacity replacement" rules, where building new, efficient capacity is contingent on shuttering older, polluting facilities of equal or greater volume, industry officials said.

"This isn't a new policy, but the political signal from the plenum means local governments will now enforce it with much more vigor," the ferro alloy analyst added. "The goal is clear: eliminate the small, dirty furnaces and consolidate the industry around a few major players who can afford the massive investments in clean tech."

That consolidation is expected to benefit large, state-owned enterprises and well-capitalized private firms, while forcing numerous smaller, often privately-owned workshops to close.

Simultaneously, producers are facing a significant rise in compliance costs. They are being compelled to install expensive equipment to capture sulphur and nitrogen oxides, source higher-quality raw ores to improve efficiency, and face the looming prospect of being brought into China's national carbon emissions trading scheme.

These rising costs are ultimately expected to be passed down the supply chain to steelmakers.

"The cost to produce ferro alloys in China is going up structurally," a ferro alloy producer said, "There's no choice; we have to invest to survive, and that means our customers, the steel mills, will have to pay more."

This volatility presents a challenge for Chinese steelmakers, who are already operating on thin margins due to prolonged weakness in the country's crucial property sector.

"We're caught between weak demand for our products and rising input costs. This green push just adds another layer of pressure," a steel source said. "Our customers demand greener steel, but the cost of the essential, greener inputs like ferro alloys is going up. This plenum just tightens that pressure."

The upheaval signals a transformative period for the foundational industries supporting China's mammoth manufacturing sector, as China prioritizes environmental goals over pure output volume.

The transition, however, also presents opportunities. Companies investing in closed-loop systems, waste heat recovery, and exploring smelting processes powered by renewable energy are likely to gain a competitive edge and secure government support.

"The message is that the future of Chinese manufacturing lies not in volume, but in value and sustainability. The ferro alloy and steel industries are central to that vision," a second ferro alloy source said.

(Source - McCloskey Ores & Alloys)