China starts new checks on excess steel capacity

The Chinese government started a new round of inspections today designed to prevent any resurgence in excess steel capacity. The checks cover 21 provinces, including the key steelmaking regions of Hebei, Shandong and Jiangsu, and will run until 15 June.

The government is trying to prevent any restarts of induction-furnace-based capacity that was shut down last year. Beijing claimed to have closed 140mn t/yr of scrap-fed induction furnace capacity as of July 2017. But such furnaces require only moderate amounts of capital and land, raising the prospect that high steel profits could encourage illegal restarts.

China banned induction furnaces because of their high levels of emissions and production of sub-standard construction steel.

The inspections are an attempt to verify whether mills have restarted capacity they were supposed to have eliminated or added any new capacity. The inspectors will also examine whether any outdated capacity should be shut down.

China has set a target to eliminate 30mn t/yr of steel capacity this year, which would enable the government to meet its wider goal of removing 150mn t/yr in the 13th five year plan period from 2016-20.

China's total steel capacity is likely to fall below 1bn t/yr by 2025, the China iron and steel association (Cisa) said. There is no official figure for current steel capacity, but estimates put it at 1.1bn t/yr.