China authorizes Local Government to Set Steel Production Cut Targets this winter

China that has waged a war against pollution over past five years has announced in its sixth year that it will direct the local government to set production cut limits for heavy industry based on manufacturers' emissions.

The heavy industry includes steelmaking, coal plants, cement factories, metal casting, and chemical production. China is not following blanket production cuts and is seeking to curb smog without unnecessarily penalizing low-emission producers at a time of slowing economic growth.

The department will issue guidance on anti-pollution measures for heavy industry based on production, technology, equipment and transport systems, and will rate manufacturers in three different categories based on their emission levels.

Ministry of Ecology and Environment (MEE) said that the purpose of this move is to minimize the impact on production at companies during the anti-pollution campaign but meanwhile continue to improve air quality. The companies will be divided into three categories and will face different levels of production curbs. Those companies that meet the ultra-low emission levels will be exempted from production cuts.

Last year also China had ditched its blanket winter output curb for heavy industry, allowing local authorities to adopt measures based on regional emission levels. However, most northern cities failed to meet winter smog targets over the six-months to end-March, which has added to fears that efforts to tackle smog have lost momentum. However, this year the country has adopted the same measures and it remains to be seen how effective this selective production cuts will prove.

China to come up with 93 MnT new capacity in 2020

China's iron and steel capacity replacement campaign has continued into the second half of 2019, with five new approvals granted by local governments so far in July for the construction of new blast furnaces and converters with the capacity of around 93 MnT per year. Most of the new facilities will be commissioned in 2020. Out of this, about 18.07 MnT of the new steelmaking capacity will use electric arc furnace technology, that doesn't require iron ore.

In 2019, there will be 38.20 MnT of pig iron and 50.20 MnT of crude steel commissioned through the replacement mechanism, including some 15 MnT of new EAFs, commissioned in 2020.

China's licensed crude steel capacity was reported by the Ministry of Industry and Information Technology at 1.13 billion MnT in 2015. Based on China's iron and steel production in May, its crude steel capacity is estimated to reach 1.17 billion-1.2 billion by the end of 2019, despite the capacity elimination campaign over 2016-2018.

Overcapacity has not yet adversely impacted the Chinese steel market (or encouraged finished steel exports as these have been flat or trending down in recent months), mainly due to strong demand from the property construction sector. Also, some of the new steel capacity has taken market share previously owned by closed induction furnaces.

In 2017, China eliminated some 140 MnT of so-called "illegitimate" induction furnaces (mainly small producers of low-quality rebar), which were not accounted for in official production capacity numbers. However, testing time will come for China in 2020 when steel capacity will be higher but the growth in the property sector growth will be slower.