China's Ministry of Industry and Information Technology (MIIT) has issued stricter rules regarding the building of new steel production capacities to replace obsolete capacities. The new regulations indicate that China is continuing its efforts to push through supply-side reform and to reduce overcapacity in the steel sector.
The new rules forbid steelmakers from increasing capacity.
In environmentally-sensitive areas, including the Beijing-Tianjin-Hebei region, the Yangtze River Delta and the Pearl River Delta, steel plants will have to eliminate at least 1.25 metric tons of outdated capacity for every 1 metric ton of new capacity, while in other regions more than 1 metric ton of outdated capacity at least will have to be eliminated when creating one metric ton of new capacity.
When a steelmaker replaces its converter capacity with EAF capacity, it is required to eliminate its sintering and coking facilities.
Regions that have not met their respective capacity control targets will not be able to receive capacities that have been eliminated in other regions, the new rules indicate.
Steel producers that have shut down illegal capacities or received financial or policy assistance to help close plants will not be allowed to build new plants.
Due to the strict implementation of capacity cuts, profits in the Chinese steel sector improved in 2017. "In the January-November period last year, combined net profits in the ferrous metal smelting and rolling sector rose by 180 percent year on year to about RMB 314 billion ($48.3 billion)," the MIIT said in its statement. It added that the steel sector should focus on quality and profits while cutting overcapacity.