China tightens steel capacity swap rules amid industry structural adjustment

The revision comes amid evolving supply-demand conditions in China’s steel sector and ongoing efforts to deepen supply-side reform, reinforce earlier steel capacity cuts, and curb disorderly competition, while supporting the sector’s higher-quality development, MIIT noted.

On 24 October 2025, MIIT released a draft version of the revised guidelines for public comment, signaling the direction of the upcoming policy tightening, as Mysteel Global reported.

Following the consultation period, the revised guidelines released on 18 May incorporated feedback from the public consultation. The updated rules replace the previous version, which had been in effect since 1 June 2021 until its suspension on 22 August 2024.

Under the new rules, the nationwide replacement ratio for both ironmaking and steelmaking capacity must be no less than 1.5:1, while the ratio for projects involving mergers and acquisitions has been raised to no less than 1.25:1.

The guidelines also introduce a two-year transition period for capacity replacements between different companies. After the transition period, capacity transfers will only be allowed through substantive mergers and acquisitions.

Differentiated replacement ratios will be applied to support low-carbon steelmaking technologies, including hydrogen-based metallurgy and electric arc furnaces, as well as special steel projects using eligible electric furnaces.

For example, a 1:1 replacement ratio is allowed when conventional blast-furnace capacity is replaced by low-carbon ironmaking projects such as hydrogen-based metallurgy that achieve significantly lower carbon emissions. A 1:1 replacement ratio is also permitted when both the retired and newly built facilities are electric arc furnaces.

In addition, electric-furnace steelmaking projects using special smelting technologies such as electroslag remelting to produce high-end special steel products are eligible for a 1:1 replacement ratio. Ironmaking and steelmaking projects built in Qinghai and Tibet in West China are also eligible.

Meanwhile, a 1:1 replacement ratio will apply to in-plant overhaul and reconstruction projects involving ironmaking and steelmaking equipment, provided there are no changes to the smelting equipment type, nominal capacity, quantity or project location.

The new guidelines also stress that long-idled capacity is not eligible for capacity replacement.

According to the new rules, capacity replacement plans will remain valid for 24 months, during which project filing procedures, energy-saving reviews, carbon emissions assessments, and environmental impact assessments must be completed and construction must officially commence.

For replacement plans announced before 23 August 2024, the same 24-month validity period will apply from the effective date of the new guidelines. If a previously announced replacement plan involves split capacity, any portion that has not been allocated to a specific construction project within the validity period will automatically become invalid.

The guidelines also clarify requirements for changes to previously announced replacement plans. If revisions involve the type, quantity or capacity of smelting equipment to be built or dismantled, or changes to the project company or location, a new replacement plan must be formulated under the updated rules. Cross-provincial replacements will also require a separate capacity transfer plan.

By contrast, if only the company name or project site within the same province changes, without substantive equipment adjustments, enterprises are only required to notify provincial industry authorities in writing.

The new rules also require companies planning steelmaking projects to carefully assess market supply-demand conditions, avoid inefficient investment, and formulate detailed capacity replacement plans.

Such plans must clearly specify project locations, equipment models, quantities, capacities, construction timelines, and retirement schedules for obsolete capacity. Vague descriptions such as “to be determined” are not permitted.

The guidelines encourage cross-regional capacity replacement and state that local governments should not restrict or obstruct cross-regional capacity transfers.

For stainless steel producers, the quantity and capacity of alloy-melting induction furnaces must match the requirements of their electric-arc-furnace or converter operations. The measure is aimed at preventing companies from adding new steelmaking capacity under the guise of alloy melting.

Provincial-level industry authorities will be responsible for verifying the implementation of capacity replacement plans, conducting annual inspections, and submitting compliance reports.

MIIT will also strengthen coordination with the National Development and Reform Commission and the Ministry of Ecology and Environment on environmental impact assessments, pollution permits, energy-efficiency reviews, and carbon emissions evaluations to ensure a more integrated regulatory framework.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.