China's Ministry of Industry and Information Technology (MIIT) is working with relevant departments to revise the steel capacity swap policy, as part of efforts to stabilize operations while accelerating transformation and upgrading in the steel industry, it said in at a press briefing on December 17.

The swap rules for steel production capacity, aimed to control overcapacity by mandating that new production facilities replace older ones of equal or greater capacity, have been suspended since August because of improper implementation since 2018 resulting in production expansion at some steel firms.

Demand has fallen more than 10% since 2020, and many analysts said the industry would need to shrink to fit an economy that's becoming less dependent on steel-intensive construction, Bloomberg reported earlier.

The policy suspension does not signal an end to new steel capacity in China but reflects a shift toward stricter regulation and modernization of the industry. According to the MIIT, the revised policy will adhere to three core principles including controlling total capacity, optimizing existing production, and promoting upgrades.

Chang Guowu, director of the raw materials industry department at MIIT, revealed at the press conference that supply-demand dynamics of the steel industry have undergone significant changes since the second half of 2022, largely due to headwinds in downstream industries like real estate. The steel industry's efficiency has recorded a notable decline.

To tackle the challenges, the MIIT has undertaken various measures in collaboration with relevant parties. In addition to steel capacity replacement policy revisions, China has also controlled crude steel production, strengthened industry regulation and promoted equipment upgrades and technological transformation.

China's crude steel production dropped by 2.7% or nearly 23 million tonnes year on year in the first 11 months this year, Chang said. Efforts were also made to encourage resources to flow toward competitive enterprises and accelerate the elimination of weaker ones.

The overarching goal is to ensure a shift from quantity-focused growth to higher-quality, sustainable development.

Since October, steel prices have rebounded and stabilized, leading to a recovery in industry efficiency. In October alone, key steel companies reported a combined profit of 7.16 billion yuan, reversing the losses observed in August and September.

Looking ahead, the MIIT will organize and carry out research on the development plan for the steel industry over the "15th Five-Year Plan" period (2026-2030). Meanwhile, it will expedite the rollout of revised steel capacity swap rules and enhance industry standards and management.

A tiered and classified regulatory approach will be implemented to select a group of leading standardized enterprises that can spearhead the industry towards high-end, intelligent, green, efficient, and safe development.