Some Chinese private steelmakers have ordered new electric arc furnace equipment after cutting their backward steelmaking equipment or induction furnaces on government orders. Data from EAF equipment-supply companies show there is around 30-40 million tonnes/year of new EAF capacity that has been booked by steel companies.

However how much steel output these new EAFs will produce remains uncertain due to conflicting government restrictions and the market situation in the second half of 2017, Kallanish notes.

In early June Baowu Group’s steel e-commerce platform Ouyeel, Guangda Securities and steel analysts held a workshop to discuss recent additions to EAF capacity. Representatives from steel mills, securities, scrap and steel firms and analysts were involved. Delegates to the event gave estimates of actual crude steel production from EAFs of only around 5-15 million tonnes in H2 2017 because of government restrictions.

The head of one scrap analysis website said its ground investigations showed that around 30% of induction furnace owners are considering or planning to add EAF capacity. However even those which have completed EAF equipment installation still do not dare to begin production due to the aggressive posture of the government against new capacity.

A steel plant manager meanwhile said that more and more mills are increasing the use of scrap in their EAFs. Previously lots of steel mills were using their EAFs as spare converters by using up to 60-80% hot metal. Based on this, he added that, “... the hike in scrap exports might not last for long.”

Meanwhile there are certain issues lying ahead for the newly-added EAF owner  which are limiting them releasing steelmaking capacity. As only some induction furnace steelmakers had attained steel production qualifications, the Economy & Information Commission has said that eliminated induction furnace capacity can not be used for capacity replacement quotas.

In addition to the government restrictions, other risk factors remain. These include the uncertainty of steel prices in H2, the tougher financing environment for steel companies, a shortage in graphite electrode supply and the need to train new EAF operators.