MIIT hails China’s new steel capacity ‘swap’ guidelines

Posted on 27 May 2021

The new guideline governing steel capacity ‘swaps’ in China to take effect next week will help the steel industry to meet new challenges over 2021-2025, said Lv Guixin, an official with China’s Ministry of Industry and Information Technology, and called for its strict implementation.


Lv made the statement in a meeting on May 25 organized by the China Iron & Steel Association (CISA) and attended by around 400 representatives from the National Development and Reform Commission’s Department of Industry, local industrial governing bodies, industrial institutions, and steel mills. The meeting had been called to answer questions in regard to the policy and make sure the new guideline is smoothly followed, according to a post on CISA’s website.

The general principle of the steel capacity swap guideline, to be effective on June 1, is that whenever new iron- or steelmaking capacity is erected, old facilities of at least the same productive capacity in operation at the time needs to be stopped and eventually scrapped. The scheme has served as an effective tool for the central government to limit the expansion of the country’s steel capacity, as Mysteel Global reported, and is credited with enabling China to permanently remove over 200 million tonnes/year of outdated iron and steel capacity over 2016-2020.

The existing guideline in place from 2018 was suspended in January 2020, pending a review of progress and reassessment of its contents and requirements, as reported. The updated guideline was issued May 6 and will come into force on June 1.

According to Lv, the guideline was revised taking into consideration the challenges the steel industry will be facing during the 14th Five-Year Plan period (2021-2025) in areas such as carbon emissions reduction, resources security and correcting unbalanced or inadequate industry development among regions.

Indeed, some major adjustments made in the new guideline were in response to these challenges, market sources noted.

In the new guideline, Beijing substantially raised the old-for-new capacity swap ratios, so as to more effectively scale down overcapacity and thus reduce the industry’s carbon footprint, they said.

For example, in environmentally-sensitive areas including North China’s Beijing-Tianjin-Hebei region, the swap ratio was raised to 1.5:1 from 1.25:1 in the old guideline. In other words, for a steelmaker to win approval to add a new 200 t/y converter, it will now have to scrap a 300 t/y converter or negotiate with another steelmaker to ‘purchase’ its obsolete capacity for scrapping, to meet the swap requirement.

The new guideline “stresses the importance of environmental protection and carbon emission reduction in its policy making process,” a Beijing-based senior analyst maintained. He noted that the preferential 1:1 capacity swap ratio will be applied to more environmentally-friendly hydrogen metallurgy projects and to regions that were less economically-developed such as in Northwest China’s Qinghai and Southwest China’s Tibet.

During Tuesday’s CISA meeting, Lv also stressed that the recent fluctuations in domestic steel prices have exerted considerable pressure on end-using sectors.

“Further surges in steel prices are neither supported by fundamentals, nor by policy,” he stated.

Source : Mysteel Global