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Interface News Reporter | Zhuang Jian

After four years, the Ministry of Industry and Information Technology once again stopped the public announcement of domestic steel production capacity replacement plans and planned to revise the existing implementation measures for steel industry capacity replacement.

On August 22, the Ministry of Industry and Information Technology issued a notice stating that from August 23, the public disclosure and announcement of new steel capacity replacement plans will be suspended. Failure to continue to publicize and announce steel capacity replacement plans as required will be regarded as illegal increase of steel capacity and will be reported as a negative example.

As early as 2013, the State Council issued a document proposing that the steel industry is strictly prohibited from building new capacity projects, and project construction must formulate capacity replacement plans and implement equal or reduced replacement.

Among them, equal replacement of capacity means that the construction project should eliminate backward or excess capacity equal to the capacity of the project, and reduction replacement means that the construction project should eliminate backward or excess capacity greater than the capacity of the project.

At the end of 2017, the "Implementation Measures for Capacity Replacement in the Steel Industry" was issued and implemented. It is clear that the capacity replacement plan must be publicized and announced to the public before it can enter the project filing stage.

An unnamed steel industry insider told Jiemian News that the original intention of the steel industry to implement the capacity replacement policy was to limit and reduce capacity, but in the actual implementation process, enterprises and local governments added capacity in disguised forms in various ways, causing the steel capacity to continue to expand. The methods include replacing small with large, creating something out of nothing, or using eliminated capacity for capacity replacement.

"Under the current situation of declining steel demand, overcapacity has become more serious. The suspension of the public announcement and notification of capacity replacement is an emergency brake on capacity expansion," the person analyzed to Interface News.

Due to insufficient downstream demand for steel, steel prices have been fluctuating at a low level. In addition, the prices of major raw materials for steel production have remained relatively high. The domestic steel industry has suffered large-scale losses in the first half of this year.

While halting the public announcement of new steel capacity replacement plans, the Ministry of Industry and Information Technology also stated that it will work with relevant parties to speed up the research and revision of the steel capacity replacement measures, further improve and perfect the capacity replacement policies and measures, and issue and implement them after widely soliciting opinions and suggestions from all relevant parties.

"In the short term, the industry will usher in a period of relatively stable production capacity, injecting good expectations on the supply side into the market." Wang Guoqing, director of the Lange Steel Research Center, said that the domestic steel industry is currently in a situation of high output and low demand, and oversupply.

The aforementioned steel industry insiders also believe that in the context of steel demand peaking and falling, curbing the disorderly expansion of production capacity will have positive significance for improving industry development expectations.

In the 2021 version of the "Implementation Measures for Capacity Replacement in the Steel Industry", the capacity replacement ratio in key areas for air pollution prevention and control such as the Beijing-Tianjin-Hebei, Yangtze River Delta, and Pearl River Delta was increased from 1.25:1 to 1.5:1, and the replacement ratio in other regions shall not be lower than 1.25:1.

The Ministry of Industry and Information Technology stated in its latest notice that since the implementation of the 2021 version of the "Implementation Measures for Capacity Replacement in the Steel Industry", the steel industry has effectively promoted industry transformation and upgrading, structural adjustment, layout optimization and mergers and reorganizations through steel capacity replacement. However, there are still problems such as inadequate policy implementation, imperfect supervision and implementation mechanisms, and incompatibility with industry development trends and needs.

Wang Guoqing believes that after the Ministry of Industry and Information Technology suspends the publicity and announcement of steel production capacity replacement, this window period can be used to sort out the current production capacity status of the domestic steel industry, revise and introduce a production capacity replacement plan that can better adapt to the direction of industry regulation, which will help the steel industry achieve better layout and structural optimization.