China Releases Revised Steel Capacity Replacement Rules to Boost Industrial High-quality Upgrade

The Ministry of Industry and Information Technology has issued revised administrative measures for steel industry capacity replacement, introducing stricter replacement standards, differentiated policy guidance and enhanced supervision mechanisms. The new regulations mark the official resumption of steel capacity replacement work suspended since August 23, 2024, and will accelerate the industry’s shift toward quantitative reduction and qualitative improvement.

Capacity replacement policies serve as a core instrument for advancing supply-side structural reform in China’s steel sector. The regulatory framework consolidates achievements in cutting backward production capacity and prevents homogeneous and excessive industrial competition, supporting the steady optimisation of the industrial structure.

The steel industry has entered a capacity reduction phase after decades of expansive growth. Further tightening of new capacity approvals helps address persistent supply-demand imbalances. Industry statistics show that between 2016 and 2024, publicly announced capacity replacement plans covered approximately 380 million tonnes of new ironmaking capacity and 430 million tonnes of new steelmaking capacity, alongside the phase-out of 420 million tonnes of ironmaking capacity and 470 million tonnes of steelmaking capacity. Despite net capacity reduction through repeated replacements, massive existing capacity stock and continuous improvements in production efficiency have prevented fundamental changes to the industry’s supply-demand structure.

The updated policy sets unified and stringent replacement ratios across the country. Both ironmaking and steelmaking projects must follow a minimum replacement ratio of 1.5:1, while mergers and restructuring scenarios adopt a ratio of no less than 1.25:1. The new rules phase out cross-enterprise capacity replacement through ordinary transactions and introduce a 24-month validity period for all approved replacement schemes. Specialised provisions are added to standardise equipment construction for stainless steel manufacturers, requiring the quantity and volume of melting and alloying induction furnaces to match supporting electric furnace or converter production processes.

Standardised capacity verification mechanisms under the revised framework strengthen whole-process industrial governance. Clear criteria for capacity calculation and supporting equipment limitations effectively regulate new production equipment deployment and restrain unregulated capacity expansion. Uniform time limits for project implementation impose rigid constraints on scheme execution. All newly announced replacement projects must complete filing, energy conservation review, carbon emission assessment, environmental evaluation and official construction initiation within 24 months from public announcement. Projects approved before August 23, 2024, are granted reasonable transitional arrangements while adhering to the same two-year timeline, implementing consistent and rigorous regulatory standards for both new and existing schemes.

Differentiated replacement mechanisms embedded in the new policy incentivise high-end and low-carbon industrial development. Projects adopting advanced smelting technologies for premium special steel production, and low-carbon metallurgical projects achieving a carbon reduction rate of over 60 per cent via hydrogen metallurgy and other innovative techniques, qualify for equivalent capacity replacement policies. The targeted preferential arrangements guide industrial resources toward high-value, eco-friendly production segments.

Industrial concentration improvement remains central to the steel sector’s high-quality transformation. The phased phase-out of ordinary cross-enterprise capacity replacement is supported by a two-year transition window. After the transition period, capacity integration and transfer will only be permitted through substantive corporate mergers and restructuring. The institutional upgrade stimulates industrial consolidation momentum, promotes resource and capacity aggregation toward leading enterprises, and optimises the overall operational structure of China’s steel industry.