According to Mr Hu Yanping, an analyst at researcher UC361.com, steel production in China fell to a 6 month low in August as companies sought to cut overcapacity. Output may fall further this month as provincial governments start power restrictions to meet a nationwide energy efficiency target.

Mr Hu said that "Producers that were ordered to cut production have raised prices to compensate for the loss and other steelmakers are taking this opportunity to boost profit."

According to data from the National Bureau of Statistics on September 11th 2010, benchmark Chinese steel prices gained 5.6% on average in August 2010 from July 2010 after producers cut output. Crude steel output was 51.64 million tonnes in August 2010. That was the lowest level since February 2010.

According to the Tangshan city government website, Hebei province will demand that Tangshan Iron & Steel Group, Shougang Corporation and other mills curb output to meet energy targets. Provinces including Shandong, Guangxi, Zhejiang and Guangdong have also taken measures to limit power supply.

Mr Michelle Applebaum industry analyst said that "While we remain not entirely convinced that the energy driven output cuts will be fully reflected in the most bullish estimates of production cuts of around 3% to 5% in coming months, it's clear that the Chinese steel market liked the news. We are seeing another surge in Chinese steel prices in the past week, with 12 increases and zero cuts."

(Sourced from www.bloomberg.net)