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in the first half of 2024, when the steel industry once again fell into a sustained "cold winter" due to overcapacity, the replacement of steel production capacity was suspended again after a lapse of four years.

recently, the ministry of industry and information technology issued a notice stating that from august 23, 2024, the public 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 new steel capacity and will be reported as a negative example. in the next step, the ministry of industry and information technology will work with relevant parties to accelerate the study and revision of the steel capacity replacement method, further improve and perfect the capacity replacement policy measures, and issue and implement them after widely soliciting opinions and suggestions from all relevant parties.

since the first release of the steel capacity replacement method in april 2015, it has been revised twice, and in the future, it will undergo a third revision. during the second revision, the national development and reform commission and the ministry of industry and information technology also stopped steel capacity replacement and project filing at the end of january 2020, until the revised "implementation measures for capacity replacement in the steel industry" was released in june 2021, with a gap of about 16 months in between.

"at present, my country's steel industry is still facing the pressure of overcapacity. affected by the deep adjustment of the real estate industry, the demand for construction steel has entered a downward cycle. in recent years, steel mills have adjusted their production capacity structure and concentrated on the production of plate products. the pressure of overcapacity in plate products has gradually increased. the problem in the construction steel market lies in demand, and the problem in the plate market lies in the rapid increase in production capacity. in an environment of large downward demand, it is no longer possible to resolve the overcapacity situation by itself over time." du hongfeng, senior analyst at steel home, said in an interview with a reporter from the china times that the steel production capacity replacement method has been revised again to further improve the capacity replacement policy measures, which will play a positive role in the stable and healthy development of the steel industry.

two suspensions and three revisions

according to data from the china iron and steel association, the average value of the cspi china steel price index in the first half of the year was 108.19 points, a year-on-year decrease of 4.89%. among them, the average value of the long product index was 110.71 points, a year-on-year decrease of 6.36%; the average value of the plate index was 106.76 points, a year-on-year decrease of 6.35%. in may 2021, the cspi china steel price index reached a maximum of 174.81 points. industry profits have also been in a downward range. according to data from the national bureau of statistics, from january to july, the ferrous metal smelting and rolling processing industry achieved operating income of 4626.37 billion yuan, a year-on-year decrease of 3.3%; operating costs of 4470.13 billion yuan, a year-on-year decrease of 3.0%; and losses of 2.76 billion yuan, a year-on-year decrease of 158.1%.

in the past two years, the steel industry has once again fallen into a new round of industry winter due to the oversupply situation that has been difficult to reverse. according to the national bureau of statistics, in terms of supply, the national crude steel output in the first half of the year was 531 million tons, a year-on-year decrease of 1.1%; pig iron output was 436 million tons, a year-on-year decrease of 3.6%; steel output was 701 million tons, a year-on-year increase of 2.8%. in terms of demand, the national equivalent crude steel apparent consumption in the first half of the year was 479 million tons, a year-on-year decrease of 3.3%.

steel capacity replacement has always been regarded as one of the important means to resolve overcapacity. wang guoqing, director of the lange steel research center, told the china times reporter that looking back over the past nine years, the steel capacity replacement method was first introduced in 2015 when steel capacity was seriously oversupplied and steel prices became "cheap". at that time, the price of steel billets fell to around 1,400 yuan, and rebar fell to around 1,600 yuan. therefore, in 2015, the ministry of industry and information technology issued the "implementation measures for capacity replacement in some industries with serious overcapacity", and introduced capacity replacement measures for industries with serious overcapacity such as steel, cement, electrolytic aluminum, cement (clinker), and flat glass.

by 2017, with the advancement of the supply-side reform cycle, in order to promote the reduction of the steel industry, the state revised the capacity replacement method of the steel industry for the first time and issued the "implementation measures for capacity replacement in the steel industry", which was officially implemented on january 1, 2018. by 2020, the measures were revised for the second time and will be re-implemented in mid-2021. the third revision of the capacity replacement method of the steel industry is currently underway.

why is it difficult to reduce production by “reducing overcapacity”?

the ministry of industry and information technology pointed out that since the implementation of the 2021 version of the replacement method, the steel industry has effectively promoted industry transformation and upgrading, structural adjustment, layout optimization and mergers and reorganizations through steel production 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.

"the replacement method after the second revision was implemented on june 1, 2021, but the proportion of steel production capacity reduction stipulated at that time was actually not in line with the current actual situation of capacity reduction and replacement. in particular, when the policy was introduced, the real estate industry was still developing relatively rapidly, but since the second half of 2021, real estate has entered a stage of sluggish and reduced development." wang guoqing said.

starting from 2021, with the beginning of the debt crisis of evergrande group, china's real estate industry entered a deep adjustment phase, which is now in its third year. in 2021, china's real estate newly started area was 1.989 billion square meters; in 2022, it dropped to 1.206 billion square meters, a year-on-year decrease of 39.4%; by 2023, the newly started area continued to drop sharply to 954 million square meters, a year-on-year decrease of 20.9%; from january to july 2024, the newly started area was 437 million square meters, a decrease of 23.2%.

the sharp decline in demand in the downstream construction industry is one of the important reasons for the overcapacity of steel production. wu wenjian, founder and chairman of the website steel home, previously pointed out that my country's steel consumption in the construction industry has entered a downward trend, and the rapid development of real estate and infrastructure is unsustainable. if the steel industry does not limit production, it may fall into a "death spiral" of falling steel prices, falling raw material prices, insufficient cost support, continued falling steel prices, and continued losses of steel mills due to overcapacity and output.

du hongfeng pointed out that the 2021 version of the steel capacity replacement method has had a positive impact on the development of the steel industry. first, it controls and reduces steel production capacity. according to estimates, after the completion of the above capacity replacement, the ironmaking capacity will be reduced by 27.52 million tons and the steelmaking capacity will be reduced by 19.43 million tons; second, it promotes the transformation from long-process to short-process steelmaking. after the completion of the above capacity replacement, the electric furnace steel production capacity will increase by 16.42 million tons. however, as the ministry of industry and information technology pointed out, there are still some problems worth solving in the actual implementation of steel capacity replacement. in fact, according to data released by the national bureau of statistics, by 2022, my country's crude steel production capacity will exceed 1.1 billion tons, an increase of about 74 million tons from 2018, and an increase for four consecutive years.

how can the steel industry truly reduce its development?

wang guoqing told reporters that it can be seen from the first three capacity replacement methods that after each revision, the new regulations have more and more requirements for capacity replacement in the steel industry. in 2015, the replacement method for the steel industry was jointly launched with the cement, electrolytic aluminum and other industries. in 2017, a separate method was introduced. the ratio and scope requirements for reduction and replacement in environmentally sensitive areas were expanded from 1.25:1 to 1.5:1, and the ratio requirements for other areas were also getting higher and higher. at the same time, the requirements for replacement plans, third-party evaluation, verification, and execution in the process of capacity replacement have also been gradually refined. in addition, the continuation of equal replacement in the construction of electric furnace steel capacity has well supported the development of electric furnace steel.

"it is foreseeable that the subsequent steel industry capacity replacement policy will be a more scientific and reasonable implementation measure based on the active promotion of capacity research and capacity management research, and the regulations in capacity verification and implementation will be more stringent and detailed, with the aim of achieving a real reduction in capacity development and structural optimization in the steel industry," she pointed out. however, this new regulation will not be introduced in the short term. according to previous experience, it is expected to be implemented by the end of 2025.

as for the recent trend of steel prices, since the release of the action plan for promoting large-scale equipment renewal and consumer goods replacement in march this year, the support details of various departments have been accelerated. according to steel home's monitoring, the total steel inventory has fallen for four consecutive weeks at the end of august. this week, the total social inventory of the five major steel grades in china + steel mill inventory has fallen for four consecutive weeks, with a net decrease of 1.5222 million tons month-on-month in this period, and a net decrease of 943,400 tons month-on-month in the previous period, and the decline continued to expand significantly; the same period last year increased by 28,400 tons week-on-week. this also shows that steel prices have rebounded from oversold recently, supply pressure has eased, and terminal demand has improved marginally. with the implementation of various policies to stabilize growth, it will provide support for the demand side in the second half of the year.

editor-in-charge: fang fengjiao editor-in-chief: gong peijia