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China’s push to reduce carbon emissions is providing a tailwind for steel producers worldwide as it limits output from the country and pushes down the cost of key ingredient iron ore, according to Nippon Steel Corp.

Japan’s biggest producer of the metal is on track to exceed its full-year profit target as elevated steel prices and the recent slump in iron ore widen its margins, Executive Vice President Takahiro Mori said in an interview.

Steel output from the world’s biggest producer slumped in July amid a push by Beijing to curb pollution from the sector that accounts for 15% of China’s carbon emissions. The drive to cut production, which is expected to continue through the rest of the year, has pushed down the price of iron ore, the main ingredient used to make steel, by around 30% since mid-July. Chinese hot-rolled steel prices, meanwhile, have remained stable over the last few months.

“China’s supply policy of cutting output and curbing exports is good not only for us but for all steelmakers,” Mori said.

Nippon Steel, the world’s fifth-biggest producer, forecast earlier this month that net income would be a record ¥370 billion ($3.4 billion) for the year through March 2022. That would represent a dramatic turnaround from losses over the past two years. The recent surge in COVID-19 cases in Southeast Asia and a shortage of semiconductors, which is depressing automobile production, are risks to the outlook but aren’t likely to be significant, Mori said.

The Japanese company’s share price is up more than 18% in August, on track for its biggest monthly gain since March.

Nippon Steel is considering a big acquisition in Southeast Asia to supplement its expanding global network and is interested in buying integrated steelworks that combine all processes to make finished metal from raw materials, Mori said. The company allocated ¥600 billion for overseas expansion in its five-year business plan released in March.

Europe, China and Japan have all committed to ambitious net-zero emission targets, putting pressure on mills to develop carbon-free steel. Tokyo plans to allocate as much as ¥193.5 billion over 10 years from its ¥2 trillion green fund for the development of hydrogen-based steelmaking, the Asahi newspaper reported last week.

How fast Nippon Steel can develop carbon-free steel production will be vital in competing with its Chinese rivals, Mori said. Tokyo needs to offer more funding for decarbonization efforts to put the Japanese steel industry on an equal footing with China, he said. “We can’t win international competition without the second and third round of funding,” given that China is offering higher amounts to its mills, Mori said.

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