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Earlier this week, China issued a stricter steel production capacity swap plan aimed at cutting existing capacity and addressing the challenges it faces, according to Reuters.

In a recent statement, China's Ministry of Industry said the nationwide iron and steel production capacity swap ratio will not be lower than 1.5:1, in line with a draft proposal released in October.

This means that for every ton of new steel capacity built, at least 1.5 tons of old capacity must be phased out.

Xinyi Shen, a senior advisor at the Center for Clean Air and Energy Research, commented: “This means that any new project that wants to be licensed will have to reduce production elsewhere.

This reflects growing policy concerns about persistent oversupply, weak profitability, and increasing pressure from both decarbonization and trade tensions.” The statement also indicated that the replacement ratio for mergers and restructurings should be adjusted to no less than 1.25:1.

According to Ms. Shen, by limiting future capacity transfers primarily to substantive mergers and restructurings, Beijing is attempting to tighten control over capacity allocation and promote industry consolidation, especially among large state-owned steel producers.

Capacity swaps between different companies will be gradually phased out, and after a two-year transition period, capacity transfers will only be possible through substantive mergers and restructurings.

The ministry stated that different capacity swap ratios may be applied to cases involving the construction of low-carbon metallurgical facilities.

Ms. Shen added that there are different alternative rules for electric arc furnace (EAF) steelmaking, specialty steel, and hydrogen metallurgy. This suggests that China wants to avoid imposing a single restriction on all new projects, and instead direct investment towards lower-carbon technologies.

Source: Vietnambiz