Key facts
- China's industry ministry has announced new rules for replacing steel production capacity.
- These changes end a nearly two-year suspension of new approvals for steel capacity.
- The revised measures increase the retirement ratio to 1.5 tonnes of existing capacity for every 1 tonne of new capacity.
- Dormant capacity is now restricted from being counted as replaceable.
- The policy aims to support the transition to greener steelmaking routes like electric arc furnaces and hydrogen-based methods.
China's industry ministry has unveiled new regulations for replacing steel production capacity, marking the most substantial policy revision since 2021 and ending a nearly two-year suspension of new approvals. These revised measures, announced on May 18, intensify the requirement for retiring existing capacity before new facilities can be built, tighten eligibility criteria, and introduce new restrictions on the use of dormant capacity.
The steel sector, responsible for approximately 16% of China's national carbon emissions, faces significant pressure to reduce its environmental impact amid slower demand growth and weak profitability. The updated policy aims to address these challenges by potentially accelerating the industry's low-carbon transition.
Since 2014, national steel policy has focused on controlling overall capacity and encouraging upgrades by mandating the retirement of older facilities before new ones can be approved. Initially, the ratio was 1.25 tonnes retired for every 1 tonne added in key regions, and 1:1 elsewhere. This evolved over time, with revisions in 2017 and 2021 incorporating preferential treatment for less polluting methods like electric arc furnaces (EAF) and emerging low-carbon technologies such as hydrogen-based steelmaking, aligning with China's climate pledges.
The latest revision generally requires 1.5 tonnes of existing capacity to be retired for every tonne of new capacity, an increase from the previous 1.25:1 ratio. It also excludes long-idled capacity from being counted as replaceable and restricts the transfer of capacity quotas. These changes reflect a growing concern for the quality of capacity reduction and a drive to create space for lower-carbon steelmaking technologies.