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China plans to tighten steel capacity swap plan

BEIJING, July 27 – China is planning stricter rules for steel capacity swaps, which were stopped at the beginning of the year, and will also expand the key areas in which they are used, according to a notice issued by the Jiangsu Iron and Steel Association.

The world’s top steel producer has been working for years to cut manufacturing capacity to reduce oversupply and shutter older, lower spec, and more highly polluting plants.

Swaps are designed to allow firms wishing to start new plants to exchange fresh capacity for closures elsewhere.

However, Beijing called off new swaps in January after finding some Chinese steel mills had expanded production capacity under the guise of using the programme.

The draft guidelines for the revised plan have expanded the number of key polluted regions, which typically face stricter regulations, to include Fenwei Plain and other polluted cities in Shandong and Henan provinces.

The proposal is for the capacity swap ratio in the key polluted areas to be no lower than 1.5 to 1, against 1.25 to 1 in the previous version introduced in 2018.

The swap ratio in other regions is required to be no lower than 1.25 to 1, versus a commitment to “swap with reduced capacity” previously.

The government will exclude capacity at “zombie firms” and ferroalloy makers from swapping, it said.

The notice also forbids new or expanded steel projects within 1 kilometre of the main and tributary streams of the Yangtze River.

The MIIT did not say when it expects to publish the final version after soliciting feedback.

China has cut more than 150 million tonnes of outdated steel capacity and another 140 million tonnes of low grade steel production over the past four years. (Reporting by Min Zhang and Tom Daly; Editing by Shivani Singh and Jan Harvey)

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