China resumes approvals of iron, steel capacity swaps in June
China has approved as of June 30 nine steel projects under its production capacity swap program since it resumed approvals based on tightened swap controls starting June 1.
While some of the newly approved projects will lead to a net decline in their capacity, China’s overall iron and steel capacity is expected to continue rising in 2021 and 2022, as previously approved projects will not be affected by the new measures, according to S&P Global Platts Analytics.
China revised its production capacity swap measures for certain regions, raising replacement ratios for old capacity with new to 1.5:1 from a previous 1.25:1. This measure will be applicable in environmentally sensitive regions, including Beijing-Tianjin-Hebei, the Yangtze River Delta, the Pearl River Delta, and Fenwei Plain.
The replacement ratio in other regions has been set at 1.25:1, compared with previous measures where capacity swaps were only required to lead to a reduction in capacity, but with no exact ratios.
Capacity can still be swapped equally, if new iron ore and steelmaking facilities are environmentally friendly, such as electric arc furnaces, Corex, Finex, or hydrogen-based ironmaking plants.
Capacity growth to rise
According to Platts Analytics, China’s ironmaking capacity climbed 2 million mt/year in the first half of 2021 to 1.030 billion mt/year, while its steelmaking capacity rose 9 million mt/year in H1 2021 to 1.264 billion mt/year.
If those ongoing projects come online as expected, iron capacity is expected to climb 17 million mt/year to 1.047 billion mt/year, while steel capacity is set to jump 24 million/mt to 1.288 billion mt/year by the end of 2021.
Iron capacity in 2022 is likely to stay unchanged from 2021 levels, but steel capacity is expected to rise by another 7 million mt/year in 2022, according to Platts Analytics.
China’s steelmaking capacity is growing faster than ironmaking capacity mainly because of the development of EAF. EAF steelmaking capacity will increase by 17 million mt/year in 2021 to about 198 million mt/year while, in 2022, EAF capacity is expected to see a net increase of 4 million mt/year.
But some market sources said some of the projects, which are planned to come online in 2021, may look at postponing their commissioning to very late in 2021 or move even to 2022, in a bid to slow down their production increase.
Newly approved projects in June, which will be commissioned during 2022-2024, will lead to a net decline of 4.6 million mt/year of ironmaking capacity and 0.2 million mt/year of steelmaking capacity, Platts calculated based on announced capacity swap details. But the reductions remain too small to reverse capacity growth in 2021 and 2022.