The Ministry of Industry and Information Technology (MIIT) of China has announced new rules governing capacity replacement in the Iron and Steel Industry. The updated policy mandates that the capacity replacement ratios for ironmaking and steelmaking operations across the country must be no less than 1.5:1, except for heavily polluting mills, which will maintain a ratio of 1.25:1. Moreover, the replacement ratio for capacity involved in mergers and reorganizations will be increased to a minimum of 1.25:1. China is also phasing out capacity replacement between different enterprises to promote industry consolidation.

A two-year transition period will be implemented for capacity replacement between different enterprises. Once this period concludes, capacity transfer can only occur through substantive mergers and acquisitions (M&A) and restructuring efforts. The new regulations also aim to regulate equipment construction in stainless steel enterprises. Specifically, the number and capacity of alloy-melting induction furnaces in these enterprises must align with the requirements of their electric arc furnace (EAF) or converter processes to prevent the unauthorized expansion of steelmaking capacity.

While the move is viewed as a sensible step in China's endeavor to establish more balanced market conditions in the steel industry, industry observers suggest that immediate production cuts are unlikely. Instead, mills are expected to adjust production levels based on market demands. A Chinese trader noted, "Mills will regulate production according to the market, this is just additional measure they will have to pay attention to."