China plans to tighten steel capacity swap ratio, encourage more mergers

China is taking a tougher stance on steel capacity swaps in a bid to control pollution emissions from its mammoth steelmaking industry and alleviate oversupply.

Its Ministry of Industry & Information Technology (MIIT) released a draft last week to seek feedback from steel industry sources on increasing the steel capacity swap ratio to 1.5:1 from 1.25:1.

This means that a steelmaker will need to cut old capacity by 1.5 units for each unit of new capacity, or 1.5 million tonnes per year of old capacity for 1 million tpy of new capacity.

The more stringent capacity swap ratio of 1.5:1 will apply to cities which typically record heavy air pollution, such as such as Beijing, Tianjin, Hebei, Shandong and Shanxi provinces in north China.

Other areas with better air quality will be allowed to continue to use a swap ratio of 1.25:1, the draft said.

Steel mills which have completed mergers and re-organizations will be also be able to follow the 1.25:1 capacity swap ratio, the draft document said.

More room for EAFs
Steelmakers which want to use electric-arc furnaces (EAF) in their steelmaking process will not need to follow the 1.25:1 or 1.5:1 capacity swap ratios.

"Older equipment which were used to support converters and basic oxygen furnaces can be replaced by EAFs on a 1:1 ratio," the document said.

EAFs which are to replace old EAFs and non-blast-furnace iron making facilities such as Corex, Finex, Hismelt as well as stainless steel capacity using RKEF+AOD production lines, will also fall under this category.

The existing ratio of 1-1.25:1 steel capacity swap ratios came into effect in 2016 as part of China’s efforts to reduce steel overcapacity and oversupply.

Jessica Zong

jessica.zong@fastmarkets.com

Miranda Song

miranda.song@fastmarkets.com

Published

Jessica Zong

Miranda Song

December 21, 2020

12:16 GMT

Shanghai