Overcapacity in Chinaʼs steel sector is throwing the country well off track to meet its 2025 climate goals for the industry, says a new analysis from the Centre for Research on Energy and Clean Air (CREA).
Tackling this glut and deepening the green steel transition in China require a net reduction in blast furnace (BF) capacity of at least 200Mt/yr by 2025 from the base in 2020, which is about 15% of Chinaʼs total steelmaking capacity and equal to the current total EU steelmaking capacity, the report concludes, with an additional net reduction of 150Mt/yr required from 2026 to 2030.
In 2024, Chinese provincial authorities greenlit 11.04Mt/yr of new BF capacity, bringing the total approved BF capacity from 2021 to 2024 to over 140Mt/yr. If constructed, these newly approved coal-based BF projects will face significant return-on-investment pressures and risk becoming stranded assets, says CREA, with potential losses estimated at 140 billion yuan (roughly $19.2 billion).
However, according to the report, low-carbon electric arc furnace (EAF) steelmaking in China remains stalled at below 10% of total output, far from the government’s 15% goal for 2025. Limited scrap steel supply, weak economic competitiveness, and the continued high utilisation of blast furnaces constrain the growth of EAFs.
The report adds that only 2.3 Mt/yr of capacity in hydrogen-based metallurgy was approved in China between 2021 and 2024, far below the pace needed to meet 2060 carbon neutrality targets.
'ʻWhile recent policy shifts with regards to the steel sector signal China is taking a more measured approach to supply-side reform, significant reductions in BF capacity are critical to paving the way for carbon neutrality by 2060.''
Xinyi Shen, lead author of the report and researcher at CREA
'ʻWhile recent policy shifts with regards to the steel sector signal China is taking a more measured approach to supply-side reform, significant reductions in BF capacity are critical to paving the way for carbon neutrality by 2060. Chinaʼs climate ambitions necessitate a profound green transition in the steel industry within the remainder of this decade, and the coming years will determine whether the industry can successfully navigate this new transformation phase,ʼ' said Xinyi Shen, lead author of the report and researcher at CREA.
''To ease these tensions, it is essential that output reduction and greening of Chinaʼs domestic steel production accelerate significantly.''
Belinda Schaepe, China policy analyst at CREA
'ʻRising trade tensions have prompted several countries to impose tariffs against China's steel exports, leading to further uncertainty for global steel markets and complicating Chinese steel makers' efforts to sell domestic overcapacity overseas. To ease these tensions, it is essential that output reduction and greening of Chinaʼs domestic steel production accelerate significantly,ʼ' said Belinda Schaepe, China policy analyst at CREA.