China to issue new steel capacity swap guidelines by year-end

China's central government will issue an updated version of its steel capacity guideline by the end of the year, aimed at further slimming down steel capacity nationwide while promoting more environmentally-friendly steel production and industry integration through merger and acquisition activity, according to a October 22 release from the Ministry of Industry and Information.

The guideline will build on that created in 2015 setting out specific rules relating to the replacement of old steelmaking facilities with new. The so-called 'capacity swap' scheme, updated again and implemented from the beginning of 2018, is credited with successfully helping China to control steel capacity and safeguard the positive outcome of its large cull of capacity which saw 150 million tonnes/year of excess steel capacity eliminated since 2016, together with the removal of 140 million t/y of substandard capacity, as Mysteel Global reported.

In January this year, MIIT decided the 2018 version required further adjustment. It launched a thorough review of outstanding new "old-for-new" steel projects while homing in on irregularities and misconduct involving projects already completed or ongoing. MIIT said in its Thursday release that the process of collecting feedback has been completed and that the new version is expected to be formally issued by the end of this year.

In the new 2020 version, higher capacity swap ratios will be introduced to further reduce capacity, MIIT said. "The steel industry has entered the phase of slimming down and against this backdrop, the capacity swap ratio must ensure that steel capacity will be effectively controlled after projects are implemented. The unreasonable phenomenon where nominal capacity has been reduced but actual production has been increased must not be allowed to occur," MIIT stated.

In the old guideline, the old-for-new swap ratio for steel projects in environmentally sensitive areas was 1.25:1 - meaning that a firm wanting to build a 10 million tonnes/year steel plant must scrap the equivalent of 12.5 million tonnes/year of outdated or surplus capacity. Environmentally sensitive areas include those in the "2+26" group of cities in the Beijing-Tianjin-Hebei area, the Yangtze River Delta and Pearl River Delta. In less sensitive areas, the ratio was 1:1.

In July, a MIIT official attending an industry event disclosed that the new version may also add the Fenwei Plains in North and Northwest China onto the list of environmentally sensitive areas, in accordance with China's air pollution control campaign, as Mysteel Global reported.

In Thursday's release, MIIT said that the swap ratios for steel projects associated with M&A agreements, those involving EAF steelmaking and non-blast furnace-based ironmaking (both favoured by Beijing for their 'green' technology attributes) will be different, in order to promote these actions and enhance the structure and upgrading of the industry.

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.