Stall in steel projects shows challenges in China’s green transition | News | Eco-Business

On August 23, China’s Ministry of Industry and Information Technology (MIIT) published a publication. don’t notice will suspend new steelmaking production projects while it reviews a policy aimed at controlling overcapacity in the sector.

The capacity renewal policy, implemented in 2014, required steel producers to compensate for new production projects by retiring old equipment. As well as easing overcapacity, it was hoped this would modernize equipment and processes, reduce pollution and reduce carbon emissions from 2020. Its suspension follows mixed results and raises questions about the future of China’s steel industry.

steel production about 15 percent China’s carbon emissions. While the capacity renewal policy helped phase out older, more polluting plants, crude steel production continued to increase.

So the suspension could curb excess capacity in the short term, but it also risks halting key decarbonisation initiatives, such as the switch to less carbon-intensive electric arc furnaces (EAFs).

By following the development of the steel industry of Hubei, China’s leading steel-producing province, it is possible to analyze the impact of the capacity shift and what its suspension could mean for the future of the industry.

The sector is turning green but expansion hasn’t stopped

MIIT published a report in 2014. don’t notice on the implementation of capacity shifting for industries with significant overcapacity, including steel, cement and aluminium. This was a response to the State Council’s guidance on resolving overcapacity and its action on air pollution plan. Over the past decade, MIIT has issued four capacity replacement policies to guide the development of the industry.

The steel industry has been the main focus of this capacity renewal policy, in which Hebei province plays a central role. As he said: “The world looks to China for steel, and China looks to Hebei.” Hebei produced 210 million tons of crude steel in 2023; this accounts for 21 percent of the country’s production. China Iron and Steel Association.

The capacity renewal policy has significantly shaped the concentration, structure and modernization of Hebei’s steel industry. Number of steel companies in the province fallen It has increased from a peak of 123 in 2011 to 39 today; top 10 companies now 70 percent The state’s production capacity.

Hebei’s industry is structured around the production of crude steel along with the transportation of steel by rail to ports for export. concentrated in eight major cities – Tangshan, Handan, Qinhuang Island, Shijiazhuang, Chengde, Cangzhou, Xingtai and Xinji.

Hebei used the replacement policy to phase out old production capacity, improve its industrial scale, and improve environmental performance. With March 202437 steel companies had a class A environmental rating and 38 factories met national green standards; This has made Hebei a national leader in these fields.

However, these policies could not prevent this situation. steady rise in Hebei’s crude steel production. Capacity data for several years show that the production of the province has continued to increase rapidly since 2011, and that policies could not control this upward trend in 2014, 2015 and 2017.

This wasn’t possible until 2021, when stricter output control policies were introduced. introducedAlthough Hebei’s production remained at a relatively high level, it began to decline.

Theoretically, capacity and output should be closely related. However, the use of more efficient technologies through capacity change led to an increase in steel production without an increase in capacity.

On top of that, some decommissioned facilities reportedly The facility, which has been idle for years, means that production capacity will increase when the new facility comes into operation. As a result, the link between designed capacity and actual output has weakened over time, making it difficult to align policy with reality.

Other problems it has also hindered the effectiveness of capacity change, such as inadequate information disclosure; errors in local capacity assessments; departmental coordination barriers; flaws in policy implementation; and lax supervision and penalties.

Effects of suspension of capacity change

The steel market remains stagnant. According to Bloomberg New Energy Finance data, the price of Chinese steel products has fallen in the last four years and profits have approached zero. If the capacity increase continues, excess supply will further increase the competitive pressure on the sector.

According to current industrial policy, the construction of new iron and steel production equipment should be carried out through capacity replacement. Therefore, suspending capacity change may prevent capacity increase in the short term.

However, the suspension will also affect key decarbonization efforts in the steel industry, such as the adoption of electric arc furnace (EAF) steelmaking. EAFs mostly use scrap steel and electricity, reducing both the production process and carbon emissions compared to blast furnaces that use coal to smelt iron ore.

Since 2022, the government has issued various policies aimed at increasing the share of EAF steel production. These include policies regarding: carbon peak in the industrial sector; pollution And emissions interruption; energy saving; high quality development steel industry and energy and carbon reduction in the steel industry. However, with the suspension of capacity replacement, businesses will no longer be able to replace old capacity with EAFs.

However, the suspension will have a limited impact on reducing carbon emissions in the short term, as most of the new steel capacity in China still uses the blast furnace process. In 2023, EAFs accounted for 10 percent of total production; This rate is well below that in 2025 aim 15 percent.

Steel decarbonization: An urgent issue

While the short-term impact of the suspension of capacity renewal is limited, given companies’ current willingness to transition and market dynamics, the urgency of decarbonizing the steel sector remains pressing if China meets its emissions reduction targets and commitments. China needs to implement new capacity renewal policies that will move the industry towards a low-carbon future as quickly as possible.

A stagnant property market means demand for construction resources is falling. Many steel companies have already started adjustment from lower margin real estate and infrastructure steel products to higher value products such as precision machinery parts and automotive materials. However, this change is about expanding production chains rather than adopting low-carbon technologies; This means this is quite different from the low-carbon transition we expect for the steel industry.