GUARANTEEING SUPPLIES: Fine ores are piled up at the freight yard of Fangchenggang Port, Guangxi Zhuang Autonomous Region (LI BIN)

Second, readjustment of the industrial layout is proceeding slowly. According to Luo, southeast China still lacks production capacity. At present, the five provinces and municipalities around the Bohai Sea produce 400 million tons of steel products annually, with half consumed by themselves and the other half transported to the southeastern region. During the 12th Five-Year Plan period, efforts will be made to boost the steel production capacity in southeast China.

Third, the industry faces heavier restrictions on energy and raw materials in addition to mandates to protect the environment. Luo thought environmental issues are particularly challenging, and the iron and steel industry must solve the problem of reducing emissions of carbon dioxide. Since the iron and steel industry is a major energy consumer, it must first start by saving energy to reduce carbon emission. Luo said the industry should also regulate the iron ore market and explore measures to maintain the sound development of both upstream and downstream industries.

Fourth, the industry's capacity for independent innovation is still weak. "During the 12th Five-Year Plan period, what will the iron and steel industry depend on to transform its development pattern? The key point is technology innovation," Luo said.

The Chinese steel industry still has many deficiencies. Lacking experienced professionals with technical know-how, many steel companies find their development held back by limited technological innovation capacities. Further most, research and development facilities operate on barebones budgets, causing an absence of core technologies.

Targets set

The plan sets six targets for the iron and steel industry in the next five years, including upgrading its line of products and improving product quality. It requires broadening scale production of such products as silicon steel sheets and increasing the market share of domestic producers to 90 percent. Meanwhile, 80 percent of high-end products such as marine corrosion-resisting steel needed in the Chinese market should be produced by domestic companies.

As for energy saving and emission reduction, the plan sets stricter targets than the one for the whole country. According to Luo, China's 12th Five-Year Plan sets a goal to reduce energy consumption per 10,000 yuan ($1,579.78) of GDP by 16 percent, while the plan for the iron and steel industry sets a stricter goal of 18 percent. In the meantime, the plan requires that the energy consumption for each ton of steel products should be lower than 580 kg of standard coal.

The plan proposes to improve the layout of the iron and steel industry. Zhao Liming, researcher at Hongyuan Securities Co. Ltd., said most of China's steel production capacity has been in the north, while south China has been facing serious shortages in supply due to fast economic growth. Hence the plan proposes that during the 12th Five-Year Plan period, the country will build two new iron and steel bases in Zhanjiang, Guangdong Province, and Fangchenggang, Guangxi Zhuang Autonomous Region, and promote the construction of an iron and steel production base in Ningde, Fujian Province, to thoroughly reverse the short supply of steel products in southeast China's coastal areas.

The plan prioritizes enhancing China's capability of guaranteeing resource supplies for the iron and steel industry. A guarantee mechanism for iron ore and coal fuels will be established, and 100 million tons of overseas production capacity of iron ore will be added. The plan also requires regulating the domestic iron ore market and enhancing exploration of domestic iron ore resources.

The plan also proposes to establish a sound mechanism for technology innovation. Steel companies should invest no less than 1.5 percent of their sales revenues in research and development. Progress should be made in independent innovative techniques such as low-carbon smelting and comprehensive resource utilization, and technologies for highly efficient production as well as energy saving and emission reduction should be widely used.

Industrial concentration will be increased, said the plan. By 2015, the top 10 steel companies will produce 60 percent of the country's total steel output, compared with the proportion of 48.6 percent at the end of 2010 and 34.7 percent at the end of 2005.