New steel capacity swap program in China stricter, still encourages new EAFs

Friday, 07 May 2021 17:31:53 (GMT+3)   |   Shanghai

China’s Ministry of Industry and Information Technology (MIIT) has announced details of the new steel capacity swap program which will take effect as of June 1, aiming to cut overcapacity and reduce air pollution.

In particular, key areas - including Beijing, Tianjin, Hebei Province, the Yangtze River Delta area, the Pearl River Delta, the Fen-wei plains, and other key cities in the provinces of Hebei, Henan, Shanxi and Shandong (Shijiazhuang, Tangshan and Langfang, etc.) will not be allowed to increase their steel capacity. Meanwhile, regions, including provinces, cities and districts, which are unable to complete control targets will not be able to accept replacement capacities from other regions. The capacity replacement ratio for the key areas will be changed from 1.25:1 to 1.5:1. This means that, for installation of one million mt of crude steel capacity, a producer will need to eliminate 1.5 million mt of capacity, while previously 1.25 million mt needed to be deleted.

Not only the replacement ratio will be bigger, but areas where the new capacity swap program will be implemented have been increased. From 2018, when the program was released, the mills could replace capacities at the rate of 1.25:1 only in Beijing, Tianjin, Hebei, the Yangtze River Delta area and the Pearl River Delta, while now the new rules will be implemented in more cities and provinces.

The new capacity swap program is expected to further encourage the installation of EAFs as such new capacities will be able to replace old BOF-based capacities at the ratio of 1:1. This may keep boost scrap use in China in the coming five years, sources believe.

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