China encouraging electric arc furnace capacity expansion?

Monday’s release by China’s Ministry of Industry and Information Technology of revised steel capacity replacement measures has sparked market debate about MIIT’s real intentions regarding electric arc furnaces.

Some pundits Tuesday were adamant the new rules encourage the replacement of converters with EAFs and would result in net EAF steel capacity expanding.

MIIT’s revised measures, published on Monday, were based on directives issued in early 2015. According to the revised version, steelmakers intending to replace their existing converters with EAFs would be permitted to carry out the replacement at a ratio of 1:1 of existing capacity versus new capacity.

Second, MIIT has reset its capacity conversion table used for calculating converter and EAF capacity, decreeing that converters or EAFs producing either ordinary carbon steel or special steel be afforded the same value regarding replacement capacity.

For example, in MIIT’s previous capacity table the productive capacity of a 100 mt converter was approximated at 1.3 million mt/year for ordinary carbon steel and 1 million mt/y for special steel. The capacity of a 100mt EAF used to be 1 million mt/y for carbon and 700,000 mt/y for special steel. Under Monday’s revision, the capacity is 1.15 million mt/year for the converter and 750,000 mt/y for EAF, either producing carbon steel or special steel.

What sparked the debate Tuesday was the clause that the 750,000 mt/y capacity standard for the 100mt EAF assumes the furnace’s melt consists entirely of ferrous scrap.

Some market sources pointed out that under the new rules, a steelmaker wanting to install a new 100mt EAF would only need to phase out 750,000 mt/y of existing crude steel capacity. However, by adding hot pig iron the EAF would be able to produce close to 1 million mt/y of crude steel. This means the EAF steel capacity at this mill is actually increased by 250,000 mt/y.

Other market watchers dismissed this, arguing the new measures actually blocked this loophole by ruling that with the shutdown of converters, all ancillary facilities which supported the converter operation – the assorted sintering, coking furnaces and blast furnaces – should be eliminated at the same time.

This being the case, there would be no blast furnaces in operation to supply hot metal to the newly built EAF. Thus the mill operators would in theory have no choice but to rely totally on scrap for the EAF and be unable boost its production above the capacity figure set by MIIT.

But one industry source questioned this theory, arguing that steel mills could just phase out part of their blast furnace and converter capacity for the installation of EAFs – several tier 1 and tier 2 steelmakers host both technologies – and could secure hot metal for the latter from their remaining blast furnaces.

Moreover, steel mills could always purchase some capacity elimination quota outside of their own steelworks, and thus keep all of their existing iron and steel making facilities in operation.

The source said the revised steel capacity replacement measures had tightened rules for all other kinds of replacements, but obviously were encouraging steel mills to switch from iron and steel making employing blast furnaces and converters to use of EAFs.

The post China encouraging electric arc furnace capacity expansion? appeared first on The Barrel Blog.



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