The Ministry of Industry and Information Technology (MIIT) of China issued the Implementation Measures for Capacity Replacement in the Iron and Steel Industry. Accordingly, the capacity replacement ratios for both ironmaking and steelmaking nationwide shall be no less than 1.5:1 (versus 1.25:1 for most mills in the country except those heavy polluting), while the replacement ratio for capacity involved in mergers and reorganizations shall be raised to no less than 1.25:1. Meanwhile, China will gradually eliminate capacity replacement between different enterprises.
A two-year transition period will be set for capacity replacement between different enterprises. After the transition period, capacity transfer may only be achieved through substantive mergers and acquisitions (M&A) and restructuring.
In addition, the equipment construction of stainless steel enterprises will be regulated. The number and volume of alloy-melting induction furnaces built by stainless steel enterprises must match the requirements of their electric arc furnace (EAF) or converter processes, to prevent enterprises from exploiting the pretext of alloy melting to construct induction furnaces for the purpose of adding new steelmaking capacity.
Generally, this step is assessed as logical amid China's fight for more balanced steel market conditions, but market sources agree that it will not lead to production cuts just now. "Mills will regulate production according to the market, this is just additional measure they will have pay attention to," a Chinese trader commented.
