China's EAF capacity growth gathers pace in 2022 as steel sector tracks decarbonization goals

China has stepped up the pace of developing electric arc furnace-based steelmaking capacity in 2022 to mark growing efforts from the steel industry, which is steadily aligning itself with the country's lofty decarbonization goals.

The country has approved the construction of 16 new EAFs with a total crude steel capacity of 13.67 million mt/year over January-April, S&P Global Commodity Insights calculations based on various announcements by local governments showed.

China has been increasingly making a push to achieve carbon targets that would require energy-intensive industries such as steel to draw up plans to keep the sector closer to the national goals.

The country has rolled out multiple plans and programs in recent months as it charts a path to carbon neutrality by 2060. Long before that target is achieved, China is aiming to hit peak carbon emissions by 2030.

EAFs are generally considered as the closet the steel industry has come to making green steel. They consume mostly ferrous scrap and have much lower carbon emissions than steelmaking via the blast furnace and converter routes.

As EAF construction approvals are contingent on replacing aging conventional capacity, the steel industry's move would also help rein in China's overall crude steel capacity.

The 16 approved new EAFs will be commissioned mainly from late 2022 to 2024 and are predicated on the closure of 14.72 million mt/year of old crude steelmaking facilities that are still running. This would lead to a net decrease of 1.05 million mt/year in China's total crude steel capacity.

Of the replaced 14.72 million mt/year of crude steel capacity, 8.72 million mt/year comes from converters.

The new EAFs will be located in 10 provinces, with Hebei recording the most EAF approvals to date in 2022, with a total capacity of 4.28 million mt/year.

China could soon start imposing carbon taxes on the steel industry, which would increase production costs in the blast furnace and converter routes and provide a further boost to the development of EAFs, industry sources said.

20% target by 2025

China is aiming to increase EAF steel's share of its total crude steel output to 15%-20% by 2025.

Industry sources said 50% of China's total crude steel capacity would eventually come from EAFs, while total crude steel production would hover around 900 million-1 billion mt/year over 2022-2025 before settling to a lower level.

China in 2021 approved the construction of 43 new EAFs with a total crude steel capacity of 29.33 million mt/year through capacity swaps, according to S&P Global's calculations based on local government data.

The EAF-based capacity in 2021 rose sharply from 2020, when around 10 million mt/year of new EAF capacity was granted construction approval.

As the steel industry remains wary of rising environmental protection costs in tandem with a higher emphasis on decarbonization in China, approvals for new EAFs in 2022 are expected to gain pace as the year progresses and exceed the 2021 level.