After a five-year interval, the rules governing capacity replacement in the steel industry have been revised again. On May 18, the Ministry of Industry and Information Technology (MIIT) released the 2026 edition of the "Implementation Measures for Steel Industry Capacity Replacement" (the "Measures"), which took effect immediately upon issuance. Since the implementation of steel capacity replacement in 2014, the Measures have undergone three revisions in 2015, 2017, and 2021. According to MIIT, the 2026 edition further tightens capacity replacement requirements, emphasizes differentiated policy guidance, and strengthens supervision and management. While further tightening overall control, the new rules explicitly favor electric furnace steel, hydrogen metallurgy, and low-carbon metallurgy. Industry insiders view this not only as a continuation of steel industry capacity reduction but also as a reshaping of the industrial upgrade path under the "dual carbon" goals.
The national unified replacement ratios for ironmaking and steelmaking capacities ensure that steel capacity "only decreases, not increases." Compared to the 2021 edition, this revision focuses on four core aspects: controlling total volume, promoting integration, advancing green development, and strengthening supervision, with significantly increased policy intensity. The most notable and crucial change is the unification of national replacement ratios. Under the 2021 edition, differentiated ratios were applied: key regions such as Beijing-Tianjin-Hebei and the Yangtze River Delta had a replacement ratio of no less than 1.5:1, while non-key regions had a ratio of no less than 1.25:1. The new regulation requires a unified national increase to 1.5:1, with no regional distinctions. This means that for every new ton of ironmaking/steelmaking capacity built anywhere in the country, 1.5 tons of old capacity must be shut down and withdrawn, fundamentally preventing disorderly capacity expansion and ensuring the industry's total capacity only decreases.
Simultaneously, the preferential ratio for mergers and acquisitions has been raised. The 2021 edition allowed a ratio as low as 1.1:1 for restructuring in non-key regions, while the new regulation uniformly increases it to 1.25:1, balancing the encouragement of integration with strict total volume control. The significant increase in the national ironmaking and steelmaking capacity replacement ratio to no less than 1.5:1 will lead to a mandatory net reduction in future steel capacity. China's crude steel output has remained around 1 billion tons annually in recent years, with 2025 output at 961 million tons, marking the first drop below 1 billion tons since 2020. Data shows that during the "14th Five-Year Plan" period, China's steel industry cumulatively reduced production by over 100 million tons.
However, the fundamental imbalance of strong supply and weak demand in the steel industry has not yet changed. As of April this year, the contradiction between strong supply and weak demand in the steel market remains prominent, with maintaining profitability still the primary task. Against this backdrop of unresolved supply-demand contradictions, high-end, intelligent, green, and integrated development has become the direction for the steel industry's transformation and upgrade. The new regulations also reflect support for the high-end and green development of the steel industry. The new rules continue and elaborate differentiated replacement policies, favoring electric furnace steel, low-carbon metallurgy, and high-end special steel to support industrial structure optimization. This includes allowing equivalent replacement for projects involving the shutdown of converters and supporting blast furnaces to build electric furnaces, as well as high-end special steel electric furnace projects. Hydrogen metallurgy and low-carbon metallurgy (with carbon reduction ≥60%) ironmaking projects also qualify for equivalent replacement. Projects achieving a carbon reduction ≥30% within three years have a replacement ratio of only 1.25:1. Projects in Qinghai and Tibet directly qualify for equivalent replacement, balancing regional development.
Plugging loopholes and prohibiting speculation to prevent "starting anew" in steel capacity replacement. The new edition of the Measures also adjusts key mechanisms for capacity replacement. A two-year transition period has been established, after which capacity transfers between different enterprises through capacity replacement transactions will no longer be permitted; only substantive mergers and acquisitions will be allowed for capacity integration. This move aims to curb speculative activities and promote increased industry concentration. Additionally, the new rules specify that capacity replacement plans are valid for 24 months; capacity quotas automatically expire if construction does not commence within this period, plugging the loophole of "hoarding quotas." Furthermore, the new regulations clarify that smelting equipment used for capacity replacement must be listed in the "filing list," and legally compliant smelting equipment built in 2016 or later can also be used for capacity replacement. According to MIIT, the "filing list" refers to the list of steel industry smelting equipment reported by the State-owned Assets Supervision and Administration Commission of the State Council and provincial governments to the State Council for filing as part of the capacity reduction implementation plan. It serves as an important basis for steel "capacity reduction." Using the "filing list" as the basis for capacity replacement is a specific requirement for consistently implementing the various deployments of supply-side structural reform. This historical baseline locking can prevent "starting anew" in steel capacity replacement.
The new regulations add closed-loop management for capacity replacement plans. Compared to the old version, the new rules establish a full-chain supervision system of "publication—verification—dismantling—self-inspection—spot check," enhancing policy coordination with the National Development and Reform Commission and the Ministry of Ecology and Environment in areas such as environmental impact assessments, pollution discharge permits, energy conservation reviews, and carbon emission evaluations to form departmental synergy. The new edition of the Measures is essentially a "2.0 version of supply-side structural reform"—it no longer settles for simple "shutdowns, mergers, and transfers" but reshapes industry competition rules comprehensively by raising entry barriers, plugging institutional loopholes, incentivizing technological innovation, and promoting industrial integration. The past development logic of the steel industry, which relied on scale expansion, is being reshaped by new rules emphasizing "reducing quantity while improving quality." Small and fragmented enterprises will face accelerated elimination, while leading enterprises with technological advantages, financial strength, and green competitiveness will occupy more favorable positions in the industry reshuffle.
For enterprises, it is necessary to proactively adapt to the guidance of the new regulations. Leading enterprises should seize opportunities for mergers and acquisitions to expand scale advantages and deploy low-carbon technologies. Small and medium-sized enterprises should focus on niche markets, accelerate technological upgrades, or seek joint restructuring. The entire industry needs to strengthen compliance awareness, strictly adhere to capacity red lines, and jointly promote the reshaping and steady, long-term development of the steel industry landscape.
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