Capacity has been a long-standing issue in the Chinese steel sector and now it seems that the country’s government is taking serious measures to tackle this problem and improve sector’s efficiency.
As per the recent updates, China’s Ministry of Industry and Information Technology (MIIT) has issued stricter rules this year implementing measures of capacity replacement for the steel industry.
Effective from 1 Jan’18, the new measure requires one ton of new capacity to be built for a minimum of 1.25 tonnes of old capacity closed in China’s Beijing, Tianjin, Hebei, Shanghai, Jiangsu, and Zhejiang province and nine cities in Guangdong province that are environmentally sensitive. Other regions would see the capacity replacement in the ratio of 1:1.
According to the statement released by MIIT, the steelmakers that plan to build new capacities will have to shut down a certain number of previous capacities. The steelmakers will also be required to replace its converter capacity in to EAF (Electric arc furnace) capacity and exit its blast furnace, sintering, and coking facilities.
The guidelines have mentioned that the mills that have closed their illegal capacities and have obtained financial and policy support from the government on their closure will not be allowed to build the new ones.
All the regions that have failed to meet their capacity control target will not be allowed to receive replaced capacity from other areas.
The capacity replacement plan does not include those units that are on the de-capacity list, low quality steel producers that use steel scrap as raw material, capacity whose main bodies have been dismantled before applying for replacement and cast facilities that do not belong to iron and steel smelting units.
In Feb’16, Chinese government had revealed its ambitious restructuring plans for country’s steel sector that included removal of 100-150 MnT of steel capacity and 800 MnT of outdated coal capacity by 2020. As a part of this plan, the government announced that it successfully cut steel capacity by 65 MnT in 2016 and another 50 MnT in 2017. Now with much stricter rules in place for capacity replacement in 2018, the country seems to be on a path to achieve its target by 2020.
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