China will launch a long-awaited national policy for its fast-growing steel industry during the first quarter of next year, an industry regulator told China Daily.

"The expected policy, the first of its kind in China, will encourage foreign investors to participate in the reshuffling of the steel industry," said an official from the National Development and Reform Commission, the industry's primary watchdog.

The policy will also include directions on the steel industry's technical access, exports and sourcing of raw materials, the official said.

However, he declined to reveal specific details of the matters.

"We deliberated over the policy for one and a half years and will submit it to the State Council very soon for final approval," he said.

China now ranks No. 1 in the world in steel demand and production.

The China Iron and Steel Association predicted earlier this year that the nation's steel demand and production will reach 276 million and 260 million tons this year respectively.

"Foreign investment now plays a small role in China's steel industry, which is in dire need of a massive shake-up due to fragmentation," Xu Zhongbo, chief executive officer of Beijing Metal Consulting Co Ltd, said in an interview with China Daily.

Total investment in the steel industry has exceeded 1,000 billion yuan (US$121 billion) since the founding of the People's Republic of China, with only about US$1 billion from foreign investors, Xu said.

"But I'm afraid there will be immense difficulties in the steel industry's shake-up, although foreign investment will be welcomed by the government," Xu said.

"Large state-owned steel makers are unwilling to be merged with others because they are very profitable. Foreign investors will not be very interested in privately-owned steel firms, because they are not as lucrative as State-owned players and are lagging behind in technology," he said.

Between January and November this year, the steel industry posted a 66.3 percent increase in profits to 91.1 billion yuan (US$11 billion).

However, evidence is emerging of a new round of shake-ups in the steel industry as many domestic steel companies are in talks about potential mergers.

Anshan Iron and Steel Corp, China's second largest steel producer in northeastern Liaoning Province, is negotiating with Benxi Iron and Steel Corp which is also located in the province for an acquisition deal, backed by the local government.

Wuhan Iron and Steel Corp, another Chinese steel giant in central Hubei Province, is reportedly in merger talks with Echeng Iron and Steel Co also in Hubei, Chongqing Iron and Steel Co in southwestern Chongqing Municipality and Hangzhou Iron and Steel Co in eastern Zhejiang Province.

There are currently about 2,000 steel enterprises in China.

The State will support expansion of existing key steel makers, and some small steel firms will be closed down or merged by the big ones, leading to a sharp decline in the total number by 2010, according to a draft of the steel policy acquired by China Daily.

The State expects China's top 10 steel makers to control more than 50 percent of the total steel output in the nation by 2010 and over 70 percent by 2020.

The policy will enhance the steel industry's threshold.

Any new steel projects will be banned from using land and electricity, acquiring production licences and entering the stock market as long as they violate the policy.

Analysts say the measure will help further cool down profligate investment in the steel industry boosted by bumper profits.

Fixed asset investment in the steel sector jumped by 40.4 percent year-on-year to 135.3 billion yuan (US$16.3 billion) in the first nine months of this year, according to statistics from the steel association.

Profits of China's 65 largest steel firms, which produce nine-tenths of the nation's total steel output, amounted to 56.7 billion yuan (US$6.85 billion) during the period, up 63.9 percent from a year earlier, thanks to robust steel demand and high steel prices.

The policy will also implement stricter energy-consuming requirements in the steel industry in line with China's medium and long-term energy-saving plan issued at the end of last month.

The policy will require steel production per ton to consume less than 0.7 tons of coal equivalents and less than six tons of water.

Currently, steel production per ton in China consumes more than 0.78 tons of coal equivalents.

The steel industry is one of the key industrial sectors in the energy-saving plan as well as the power, non-ferrous metal, oil and chemical, machine-building and coal industries.

The plan hopes to slash energy consumption per 10,000 yuan (US$1,200) of the gross domestic product to 2.25 tons of coal equivalents by 2010 and 1.54 tons by 2020 from 2.68 tons in 2002.

Officials from the steel association stressed that China will remain a net steel importer in coming years despite a jump in its steel exports this year.

The association predicted the nation's steel exports will increase to 11 million tons this year from nearly 7 million tons last year, due primarily to higher international steel prices and the world's booming steel demand.

China's steel imports will decline to 30 million tons this year from 37 million tons last year, the association said.

(China Daily December 23, 2004)