The major problem challenging China's iron and steel industry are small mills that drag down the output efficiency of the whole industry, according to industry experts.

At the 2006 International Forum on China's Iron and Steel Industry which closed Tuesday, experts generally agreed output capacity has been increasing faster than market demand, and irrational building of medium and small iron and steel plants is to blame for this unbalanced development.

Liu Fujiang, an official with the National Bureau of Statistics (NBS), said small and medium-sized firms lack state-of-the-art technologies and consume more energy and produce more pollution than the few giants in the industry.

Jia Yanlin, assistant general manager of the Bao Steel Co. Ltd., said that since 2001, China's iron and steel output has maintained an annual average growth of over 20 percent, while the growth in demand has gradually dropped to around 10 percent.

He said China's iron and steel output in 2006 will increase by 70 million tons over last year. Domestic markets will consume about 40 million extra tons, but its unlikely the additional 30 million tons can be sold on the international market.

Many experts say overproduction will help promote market competition, leading to acquisitions and mergers. Inefficient medium and small firms will have to merge or shut down, they say.

Over the last ten years, China has produced more steel than any other country, with output reaching 352 million tons in 2005, nearly a third of the world total, according to the National Development and Reform Commission.

Source: Xinhua