The Centre for Research on Energy and Clean Air have released their biannual review of China’s steel sector in 2024. The report examines the gap between the industry’s current trajectory and the requirements needed to meet the country’s broad and steel sectoral climate objectives.
China’s crude steel production surpassed 1 billion tonnes in 2024 for the fifth consecutive year. Steel consumption has slumped over the past four years, leading to severe oversupply that has continued eroding profitability to near-zero margins for over three years. Meanwhile, China’s climate ambitions necessitate a profound green transition in the steel industry within this decade to pave the way for carbon neutrality by 2060. However, overcapacity also weighs down on the breakthrough of low-carbon development.
Key findings
- China remains off track for its 2025 climate targets for the steel sector, as low-carbon electric arc furnace (EAF) steelmaking remains stuck at below 10% of total output, far from the government’s 15% goal for 2025. EAF share is weighed down by relatively low recycling rates and economic incentives that lead to the use of scrap steel in blast furnaces-basic oxygen furnace (BF-BOF) rather than EAF.
- Steel exports surged to 111 million tonnes in 2024, the highest in nearly a decade. Rising global trade frictions pose increasing challenges for Chinese steelmakers in 2025 to offset waning domestic demand through exports.
- Tackling the glut and deepening the green steel transition in China require a net reduction in BF capacity of at least 200 million tonnes per annum (Mtpa) by 2025 from the base in 2020, which is about 15% of China’s total steelmaking capacity and equal to the EU’s current total steelmaking capacity. An additional net reduction of 150 Mtpa is required from 2026 to 2030.
- In 2024, provincial authorities also greenlit 11.04 Mtpa of new BF capacity, bringing the total approved BF capacity from 2021 to 2024 to over 140 Mtpa. Given China’s overcapacity in coal-based steelmaking and commitment to carbon neutrality, significant reductions in BF capacity are imperative. If constructed, these newly approved coal-based BF projects will face significant return-on-investment pressures and risk becoming stranded assets, with potential losses estimated at 140 billion yuan.
- Hydrogen-based metallurgy is critical for carbon neutrality, yet only 2.3 Mtpa of capacity was approved between 2021 and 2024—far below the pace needed to meet 2060 carbon neutrality targets.
The market expects a new round of supply-side reform, focusing on industry consolidation, stricter production controls, and carbon market inclusion. The suspension of new iron and steel project approvals in August 2024 signals a policy shift, but further action is needed.
Policy recommendations
- Speed up the adoption of low-carbon technologies, such as EAF and green hydrogen metallurgy, with financial incentives and policies that support innovation and large-scale implementation across the industry.
- Reduce the capacity of coal-based BFs and BOFs and halt new project approvals. This will help avoid stranded assets and facilitate a smoother transition to greener technologies.
- Support research into alternative steelmaking methods and enhance international collaboration to promote innovation and differentiation in the steel sector. This will drive competitiveness and sustainability across the industry.
- Maximise the potential of renewable energy from wind and solar to create synergies between the decarbonisation of electricity and industrial processes, aiding a smoother transition to a low-carbon economy in China.
- Strengthen the carbon market by expanding its scope to include steel, cement, and aluminium industries, as proposed in a draft policy in September 2024. A transition from an intensity-based approach to a tightening cap-and-trade system is also needed to ensure significant emissions reductions across these sectors.
