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China to tighten approvals of steel capacity swaps, to bank all new steel capacity

China will tighten approvals of steel capacity swapping between companies and ban all new steel capacity in any form, to further its efforts to reduce overcapacity in the sector, said the National Development and Reform Commission (NDRC), China’s top economic planner in a statement on Thursday.

The announcement comes after illegal capacity expansions approved by local governments under the cover of capacity swaps, where companies move capacity between different regions to reduce the concentration of plants in polluted industrial areas.

Additionally, China will control steel-making capacity in key pollution-control areas, including the Beijing-Tianjin-Hebei region and the Yangtze River Delta, by imposing more strict environmental, energy, land and water usage standards, according to the statement.

China, the world’s biggest steel producer, has eliminated more than 150 million tonnes of crude steel capacity in the past three years. There are around 980 million tonnes remaining, nearly half of the world’s total.

The central government will carry out inspections on capacity cuts to prevent closed projects from reopening, according to the NDRC statement.

Meanwhile, the regulator will encourage mergers and restructuring in the steel, coal and coal-fired power sectors this year, and aims to eliminate all “zombie firms” – companies with outdated equipment and debt, through forced shutdown or mergers by 2020.

Last year ,the regulator required local governments to help zombie companies  to reach deals with their creditors and draft plans for restructuring by June this year.

The NDRC also urged steel makers to launch large-size scrap recycling and processing centers and to adopt electric-arc furnaces instead of widely used blast furnaces to reduce toxic air emission.

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