Posted on 31 Jan 2020
S&P Global Platts estimates China’s crude steel capacity reached 1.21 billion mt/year in 2019, of which around 155 million mt/year was electric arc furnace or EAF steelmaking capacity.
Net crude steel capacity expansion reached 42 million mt/year in the year, but is set to slow to 14 million mt/year in 2020. From 2023, China’s crude steel capacity will gradually stabilize.
However, some market sources suggest China’s EAF steel capacity has reached at least 185 million mt/year as a number of induction furnace steelmakers transformed into EAF steelmakers over 2018-2019 — induction furnaces were largely removed by mid-2017 on government orders. Technically, these new EAFs are illegitimate, and may not be accounted for in official statistics, market sources said.
Nonetheless, China’s EAF capacity expansion will largely slow from 2020 as the market share that was freed up by the removal of induction furnaces in 2017 has already mostly been taken up by new EAF capacity.
Chinese steel capacity has been expanding due mainly to three factors: Replacement of long idled capacity, improved technology and unapproved expansions.
Firstly, part of the old capacity that steel companies had to shut down before they could build new capacity of a similar size had already been idled or closed long before 2019. Therefore, some of the new facilities that have come on stream from 2019 have added to net capacity.
Last year, 34.96 million mt/year of new capacity was commissioned, replacing 34.54 million mt/year of “old” crude steel capacity. But Platts estimates that some 32.71 million mt/year of that old capacity was closed long before 2019, leaving a net capacity expansion of 33.13 million mt/year.
This kind of expansion will largely slow down from 2020 as most of the old capacity targeted for closure in 2020 is still in operation.
Secondly, capacity has expanded due to improved iron and steelmaking technologies, as well as from sales of capacity quotas to more efficient and advanced mills from less advanced mills. New iron and steelmaking facilities are generally around 10%-25% more efficient in terms of production per cubic meter than old ones, according to market sources.
Moreover, market sources said some of these new facilities are in fact larger than their approved capacity, leading to a third kind of expansion.
China’s Ministry of Industry and Information Technology, together with the National Development and Reform Commission and National Bureau of Statistics, launched a nationwide investigation into Chinese steel capacity last November. Some steel mills had been running at more than 100% of their installed capacity, while some were running as high as 150%. The Chinese authorities have not yet disclosed their investigation results, but some market sources believe unapproved capacity expansion is the reason for such high utilization rates.
However, market sources believe the investigation will have little impact on China’s steel capacity expansion. This is partly because the lift in steel capacity occurred in 2019, and once new facilities are commissioned and operating, it is difficult to find out whether or not they are larger than approved.
Strong end-user demand, especially from the property sector, justified the steel capacity expansion in 2019, market source said. While steel supply and demand remained in balance, there was no need to interrupt the commissioning of new facilities, the sources said.
Source:Platts