China issues revised steel ‘capacity swap’ guidance draft

The term “capacity swap” refers to the removal of old or inefficient iron- or steelmaking capacities by steelmakers and the installation of new facilities of similar capacity, a crucial measure in the central government’s strategy to rein-in the country’s bloated steel industry. Beijing is also eager that benefits to the industry’s structure achieved by the removal of over 150 million tonnes/year of excessive iron and steel capacity over 2016-2018 and 140 million t/y of substandard induction furnace capacity in 2017 are safeguarded, Mysteel Global notes.

Once ratified, this new guideline will replace that in force since the beginning of 2018 but suspended January. That was when MIIT decided adjustments were needed after irregularities and transgressions were found in completed or ongoing capacity-swap projects, as Mysteel Global reported. The ministry also hoped that reformulating the key provisions of the guide would help to slim down the industry further while promoting environmentally-friendly steel production and industry integration through mergers and acquisitions.

The ministry will accept public feedback regarding its draft until January 18, 2021, according to MIIT’s Wednesday release.

Though not unexpected, significant changes have been made in this new guideline, Mysteel Global noted. The capacity swap ratio for areas that are susceptible to atmospheric pollution is raised to 1.5:1 from 1.25:1 in the existing guide, meaning that for a mill to build a 1 million t/y converter, it must eliminate steelmaking capacity of over 1.5 million t/y. The ratio for other areas is also raised to 1.25:1 from 1:1.

Addressing an industry conference in July, Lv Guixin, a senior MIIT official, had given a strong signal that the ratios would be increased to further reduce China’s total steel capacity, as Mysteel Global reported.

Yet, to enhance industry concentration MIIT had stated that so long as the capacity is acquired through mergers and acquisitions, the swap ratio for new capacity will be 1.25:1 in environmentally sensitive areas, and 1.1:1 in other areas.

Meanwhile, the guideline encourages Chinese mills to switch from blast furnace-based steelmaking to more eco-friendly steel production employing technologies such as electric arc furnace, Corex, Finex and HIsmelt-based steelmaking, saying that for such projects, the ratio will be 1:1, namely, “equivalent swap”.

The “equivalent swap” principle also applied to projects that use RKEF+AOD to produce stainless steel, according to the draft.  

As indicated by Lv in July, the new guide adds the Fenwei Plains spanning North, Northwest and Central China to those areas it regards as environmentally-sensitive, to synchronize the definition in the country’s campaign against atmospheric pollution. Therefore, the environmentally-sensitive areas for steelmakers now include “2+26 cities” in and around North China’s Beijing-Tianjin-Hebei region, the Yangtze River Delta, Pearl River Delta and the Fenwei Plains, according to the guideline.    

Written by Olivia Zhang, zhangwd@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com