China's steel sector faces rising illegal new capacity risks

World's top steel maker China is facing increasing illegal new capacity risks, a Ministry of Industry and Information Technology official said on Thursday.

By Min Zhang and Shivani Singh

QINGDAO, China, Sept 26 (Reuters) - World's top steel maker China is facing increasing illegal new capacity risks, a Ministry of Industry and Information Technology official said on Thursday.

The ministry is currently conducting audits to curb outdated capacity and resolve the problems of overcapacity in China, Xing Tao, deputy director of the ministry's raw materials department, said at an industry conference.

The ministry expects to issue guidelines to encourage adoption of electric arc furnaces in 2019, Xing said.

Electric-arc furnaces only use scrap metal and electricity to produce crude steel, but their costs could still be higher than traditional blast furnaces that use coking coal and iron ore.

China has shut 700 small steel mills with 140 million tonne steel capacity deemed sub-standard, plus 150 million tonne inefficient capacity at larger firms over a four-year campaign against pollution and excess capacity in heavy industry.

More than 50 Chinese steel companies pledged in 2018 to shut old capacity and build new furnaces with a combined annual capacity of 60.29 million tonnes, according to a Reuters analysis of official industry data.

Of this, nearly 25 million tonne capacity is scheduled to come on line in 2020.

China will also speed up mergers and restructuring for steel industries, Xing reiterated the country's plans to consolidate its steel sector.

China churned out a record 928.26 million tonnes of crude steel in 2018, up 6.6% from 2017.

(Reporting by Min Zhang and Shivani Singh; Editing by Himani Sarkar and Rashmi Aich)

((ShivaniSingh2@thomsonreuters.com; +861056692115; Reuters Messaging: shivanisingh2.thomsonreuters.com@reuters.net))

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