New projects will require more substantial cuts elsewhere
China has released a stricter plan for the exchange of steel production capacity, according to Reuters.
According to a statement from the country’s Ministry of Industry, the nationwide capacity replacement ratio for pig iron and steel production must not be less than 1.5:1, in line with a draft proposal published last October.
As noted by Xinyi Shen, senior advisor at the Center for Energy and Clean Air Research, this means that any new project will now require a more substantial reduction in net capacity elsewhere. This reflects policy concerns regarding persistent oversupply, low profitability, and mounting pressure on steelmakers (decarbonization, trade tensions).
The replacement ratio for mergers and reorganizations should be increased to no less than 1.25:1.
Capacity swaps between different companies will be phased out. After a two-year transition period, capacity transfers may only be achieved through major mergers and reorganizations.
The Ministry stated that differentiated capacity replacement ratios may apply to cases such as the construction of low-carbon smelting equipment.
Differentiated substitution rules for EAF steel production, special steel, and hydrogen steel industry indicate that China wants to avoid a blanket cap on all new projects and instead direct investment toward low-carbon technologies, Shen believes.
As a reminder, it was reported in April that China is stepping up efforts to combat “involution”-style competition in its steel sector.
This involves introducing stricter controls on steel production, exploring new capacity management mechanisms, and coordinating efforts among the government, industry, and enterprises.
