According to Morgan Stanley, China’s goals to tackle their notoriously bad winter pollution could be the “next big even to unsettle global commodity prices.”
“These policies really are unprecedented,” Morgan Stanley’s Tom Price said.
China’s measures will likely disrupt ports, rail, and road, and will also result in the temporary closures of steel and aluminum plants in key hugs, according to the bank.
The supply of metals in China has already been impacted this year by closures of unapproved and outdated plats as the government has attempted to increase its safety and environmental oversight. China’s largest steel hub, the city of Tangshan, has already shuttered half of its iron ore processing plants as an emergency action as the city approached dangerous pollution levels.
According to Bloomberg, the order comes just before an important political gathering in Beijing later this month.
The anti-pollution order risks disruptions to steel demand as well as supply. The city of Zhengzhou, the capital of the Henan province, announced that it will halt construction of buildings, roads, and water facilities during the winter season to fight pollution. Zhengzhou also said it would cut steel capacity in half and aluminum capacity by over a third during the season.
For materials like iron ore, Goldman Sachs Group has said that “the market has not fully priced the negative impact of China’s environmental restrictions.” Iron ore, the raw material for steel production, fell into a bear market last month and the rout has extended as China’s anti-pollution campaign will likely hurt demand for steel when global mine supplies are about to expand, Goldman Sachs said.