No Fresh Steel Making Capacity in 2018 - Chinese Ministry

China will continue to cut existing steel capacity and ban the launch any new steelmaking facilities in 2018, the Ministry of Industry and Information Technology (MIIT) said in a statement late on Wednesday.

"We will strictly forbid any new steel capacity to be launched and make sure all outdated steel capacity is eliminated and prevented from reopening," the MIIT said.

In 2015, China, world's largest steel producer received lot of flakfor dumping of cheap steel products in various countries amid poor domestic demand and increased overcapacity. In order to deal with its problem of excess capacity, the Chinese government announced its massive plan to cut 100-150 MnT low-tech illicit steel-making capacity by 2020.As confirmed by CISA (China Iron and Steel Association) the country was able to fulfil its target of cutting 115 MnT (65 MnT in 2016 and 50 MnT in 2017) capacity in last two years.

Closing of obsolete induction furnace and encouragement of EAF (Electric arc furnace)

As per the industry reports, the Chinese government has declared its intentions to do away with obsolete induction furnaces and promote EAFs which comparatively generates lesser pollution in the environment. The country has recently increased its volume of EAF capacity approvals, which will result in new facilities coming into play from 2018 onwards.

As per SteelMint analysis, apparently there are two major reasons to promote EAFs by the Chinese government:

. Likelihood of increased supply of scrap, a key raw material for EAF

Unlike blast and induction furnace that require use of iron ore and coking coal respectively as its raw materials, EAF requires use of melting scrap to manufacture steel. As per the industry reports, China's supply of steel scrap is set to surge as aged buildings, bridges and cars produced over decades of rapid economic growth are being knocked down, dismantled or crushed. This easy and abundant availability of scrap in the coming years will smoothen EAFs functioning in the country.

. Reducing dependence on imported iron ore

China is largely dependent upon imports to meet its iron ore requirement, a key raw material for blast furnace. However, iron oreprices has been rallying up since Nov'17 amid increasing demandand is anticipated to increase further in the upcoming months. With high iron ore costs, steel manufacturing through EAF route will be more viable and cost-effective option for the country.

According to a research report by DBS Bank, out of China's total steel-making capacity in 2017, around 780 MnT is estimated to come from blast furnace route, 65 MnT from EAFs and around 30 MnT from induction furnaces. However, as a consequence to the current measures that are being adopted by government it is estimated that in 2018, about 755 MnT will come from blast furnace and 70 MnT will come from EAFs while contribution from induction furnaces will be zero.
China Steel-making Capacity by Type

E : estimated
F: forecast
Quantity in MnT
Source: DBSBank