Although over-investment has been curbed through the use of macro-controls, the steel sector needs to improve its production structure, distribution of steel firms, industrial organization and resources, according to Assistant Commerce Minister Huang Hai.

He was speaking at a recent symposium held to discuss steel market forecasts and related countermeasures. It was held jointly by the Ministry of Commerce, National Development and Reform Commission (NDRC), State Council Development Research Center, and China Logistics and Procurement Association earlier this month.

Huang outlined three challenges for the sector's development next year:

First, fixed-asset investment growth has fallen rapidly, but it is still higher than the national average. For example, investment between January and September increased 34.2 percent over the same period last year, 4.3 percentage points higher than the national average.

Second, old steel equipment and technologies may be increasingly reused. In the third quarter of this year, the price hike of steel products stimulated production. Equipment and technologies that don't accord with national standards were used to maintain supply.

Third, fast growth in exports places a strain on domestic supplies. Since May, exports of steel products exceeded one million tons, the highest level in history. This puts a strain on energy and mineral resources.

Zhu Hongren, vice director of the NDRC's Economic Operation Bureau, attached particular importance to structural adjustment and technology upgrades.

He said that demand might decrease due to the government's macro-control measures. China's economic growth in 2005 will decrease a little, which will directly impact on industrial production. Slowed fixed-asset investment will reduce demand for steel, while steel export demand might also be influenced.

Currently, steel production capacity is about 310 million tons, and potential additional capacity is 150 million tons. Zhu warned that oversupply and improper production structure might aggravate competition and trigger a price war.

On the other hand, Zhu said that supply of resources like coal, electricity and oil, and transportation capacity are expected to worsen next year. This will increase production and transportation costs.

(China.org.cn by Tang Fuchun, December 16, 2004)