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China to commission 93 million mt/year of new steel capacity in 2020

Singapore — China's iron and steel capacity replacement campaign has continued into the second half of 2019, with five new approvals granted by local governments so far in July for the construction of new blast furnaces and converters with capacity of around 93 million mt/year. Most of the new facilities will be commissioned in 2020.

The combined pig iron and crude steel capacity due to be commissioned in 2020 has reached 78.16 million mt/year and 92.67 million mt/year respectively.

This will be predicated on closures of 90.81 million mt/year of pig iron and 104.38 million mt/year of crude steel capacity, S&P Global Platts calculates, based on replacement approval announcements.

Some 18.07 million mt/year of the new steelmaking capacity will use electric arc furnace technology, that doesn't require iron ore.

In 2019, there will be 38.20 million mt/year of pig iron and 50.20 million mt/year of crude steel commissioned through the replacement mechanism, including some 15 million mt/year of new EAFs, Platts estimates.

Although capacity replacements over 2019-2020 will in theory reduce China's pig iron and crude steel capacity by around 13.41 million mt/year and 12.51 million mt/year, China's capacity has been creeping up again in 2019.

China's licensed crude steel capacity was reported by the Ministry of Industry and Information Technology at 1.13 billion mt/year in 2015.

Based on China's iron and steel production in May, its crude steel capacity is estimated by Platts to reach 1.17 billion-1.2 billion mt/year by the end of 2019, despite the capacity elimination campaign over 2016-2018.

Overcapacity has not yet adversely impacted the Chinese steel market (or encouraged finished steel exports as these have been flat or trending down in recent months), mainly due to strong demand from the property construction sector. Also, some of the new steel capacity has taken market share previously owned by closed induction furnaces.

In 2017, China eliminated some 140 million mt/year of so-called "illegitimate" induction furnaces (mainly small producers of low-quality rebar), which were not accounted for in official production capacity numbers.

A test for China's steel market may come in 2020, when steel capacity is likely to be higher but property sector growth is expected to be slower.

China's capacity changes over 2019-2020 million mt/year

Newly added crude steel capacity Crude steel capacity closures Net removal
2019 50.2 -51 -0.8
2020 92.67 -104.38 -11.71
2019-2020 142.87 -155.38 -12.51

Source: China local governments, S&P Global Platts

-- Analysis by Zhang Jing,

-- Edited by Paul Bartholomew,