China steel capacity replacements continue in 2018 with more electric arc furnaces

China granted approvals for the installation of new steelmaking facilities with a capacity of 149.8 million mt a year between the start of 2017 and April 2018, predicated on the closure of 169.7 million mt/year as part of its capacity replacement campaign, S&P Global Platts calculations based on Chinese local government announcements show.

The new capacity, most of which has no fixed timetable, will come on stream mainly over 2018-20. Most of the closures will be carried out once new facilities are commissioned.

Of the total new capacity, 51.4 million mt/year, or 34%, will use electric arc furnaces, while the rest will be converters.

Some 11 million mt/year of this new EAF capacity Will replace converters, while the rest will be the replacement of existing EAFs.

China has been encouraging steel mills to switch from blast furnaces and converters to EAFs since 2017. This is because EAFs are more environmentally friendly, and the supply of ferrous scrap has grown after the elimination of 140 million mt/year of induction furnace capacity in 2017.

Some market sources said the switch from blast furnaces and converters to EAFs would be slow as scrap supply has been unstable and inadequate.

However, some said the trend would be irreversible because as China's fight against air pollution continues the frequent and stringent output controls at blast furnaces would encourage steelmakers to shift gradually to EAFs, which would be spared output cut orders during bad weather.

Meanwhile, from the start of 2017 to April 2018, approvals granted for new pig iron making facilities -- blast furnaces, has totaled a combined capacity of 111.66 million mt/year, also predicated on the shutting down of existing blast furnaces with a pig-iron capacity of 130.3 million mt/year.