China approves construction of new steel plants in a simplified regime

China is approving new steel mills at a rapid pace, which increases the risk of an oversupply of steel that could once again erode global steel prices. China has approved eight steel replacement projects between September and mid-October, which will produce 17.18 million tonnes of pig iron per annum and 13.56 million tonnes of steel per annum for production over the next 3-4 years. The new projects are designed to close 19.52 million tons of pig iron per year and 15.21 million tons of steel per year. However, by the end of 2018, 5.18 million tons of pig iron per year and 2.16 million tons of steel per year were closed. This means that there will be only 14.39 million tons of pig iron per year and 13.

While China has effectively banned additional steel production capacity, the net increase in total production occurs in two main ways: new plants replace those that in some cases have been closed for a long time; and smelters are more efficient than the ones they replace.

A total of 208.57 million tonnes per year of new steelmaking capacity will be commissioned in 2019-23, based on a closure of about 228.97 million tonnes per year. Of the total estimated closure, 58.05 million tonnes per year have already been closed by 2019.

China's net increase in steel production will amount to 37.65 million tonnes per annum from 2019 to 23, of which 34.88 million tonnes per annum is to be commissioned in 2019. Thus, the total steel production in China will be about 1.2 billion tons per year. by the end of this year.

There are experts in the Chinese steel market who believe that the real net increase in steel production capacity could be even higher, as the new capacity can produce up to 20% more of the installed capacity.

This is made possible by improved production technologies, the addition of more scrap to the iron and steel production process, and the use of higher quality iron ore.