China is expected to issue revised iron and steel capacity replacement measures by the end of 2020, aimed at closing loopholes in steel capacity swap arrangements and stop China’s iron and steel capacity from expanding too much, according to a government media reported.

However, the revised measures are expected to mainly impact projects that are still at the planning stage rather than those already commissioned, under construction, or those that have been approved, some market sources said.

 According to S&P Global Platts analysis, based on ongoing capacity swap projects, China’s total crude steel capacity will increase to 1,257 million mt/year by the end of 2020 and to 1,285 million mt/year by the end of 2021, up from 1,243 million mt/year at the end of 2019.

Capacity will continue rising slightly in 2022, and eventually come to a halt around 2023-2024.

Currently, the replacement ratios of new capacity to old capacity are 1.18:1 for iron making and 1.15:1 for steelmaking capacity.

The revised version is expected to raise the ratio to 1.5:1 in environmentally sensitive regions, including Beijing-Tianjin-Hebei, Yangtze river and Fenwei Plain regions, one senior industry participant said.

Chinese mills are only allowed to build replacements or swaps of a similar size to those facilities that are taken offline.

Platts estimates there was around 35 million mt of newly commissioned capacity in 2019, which has in effect acted as new net capacity because the facilities they were replacing had been shut down for several years. This contributed to surging crude steel production of almost 1 billion mt in 2019.