China to tighten steel capacity swap controls from June 1

ndustry ministry publishes new rules on steel capacity swaps

  
Image used for illustrative purpose. A worker walks past steel rolls at the Chongqing Iron and Steel plant in Changshou, Chongqing, China August 6, 2018. Picture taken August 6, 2018.

Image used for illustrative purpose. A worker walks past steel rolls at the Chongqing Iron and Steel plant in Changshou, Chongqing, China August 6, 2018. Picture taken August 6, 2018.

REUTERS/Damir Sagolj

BEIJING - China will tighten steel production capacity swap controls in key areas suffering from air pollution under new rules from June 1, the government said on Thursday.

China, the world's top steel producer, has for years been working to cut capacity to reduce oversupply and pollution. However, a swap system allows producers to bring online new capacity in return for closures elsewhere.

The capacity crackdown has taken on added significance since President Xi Jinping in September made a commitment for China to reach peak carbon emissions by 2030.

"It is strictly forbidden to increase the total steel production capacity in key areas for air pollution prevention and control," the Ministry of Industry and Information Technology said in a document posted on its website.

These include Beijing, Tianjin and 26 other northern cities, the Yangtze River and Pearl River deltas and Fenwei Plain, which includes parts of Shanxi, Shaanxi and Henan provinces.

In these areas, the replacement ratio for capacity swaps will be no less than 1.5:1, the ministry said, meaning at least 150,000 tonnes of steel capacity needs to be closed to bring 100,000 tonnes of new capacity online.

This ratio, which was flagged in a draft proposal published by the Jiangsu Iron and Steel Association in July, is higher than the stipulated 1.25:1 ratio in a previous version of the swap rules introduced in 2018.

In a separate announcement, China's National Development and Reform Commission, the country's top economic planner, said it encouraged any new projects in these key polluted areas to be built in locations that already have steel plants.

Those in new locations should have annual capacity of at least 20 million tonnes for coastal cities, it added.

Inland, steelmaking projects using blast furnaces or oxygen converters should have annual capacity of no less than 10 million tonnes and electric arc furnaces at least 2 million tonnes, it said in a statement outlining how to prevent what it described as "blind investment and disorderly construction".

China churned out more than 1 billion tonnes of crude steel in 2020. 

In other parts of China, the replacement ratio will be no less than 1.25:1, the industry ministry said, versus 1:1 previously.

Hydrogen-powered steel projects must "strictly follow" capacity swap rules but will be allowed to use a 1:1 replacement ratio, it added, as the government seeks to promote low-carbon steel by replacing coal with cleaner fuel sources. 

The ministry also said low-grade and outdated steel capacity - as well as ferro-alloy smelting capacity - does not qualify for swaps.

(Reporting by Min Zhang and Tom Daly Editing by David Goodman and Jason Neely) ((tom.daly@thomsonreuters.com; +86 10 5669 2119;))


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