IN a move to meet this year's energy-saving targets, Hebei, China's largest steel producing region, and other provinces are shutting inefficient steel plants by cutting off their power supply.

The campaign, which started in late August, has already caused prices to rise in the steel market and could lead to supply shortage and lower prices of raw materials, analysts say.

Eighteen steel mills in Wu'an, Hebei, have been ordered to shut operations for up to one month from last Sunday, the China Securities Journal said.

Hebei's Tangshan is also reportedly evaluating power consumption among energy-intensive industries.

Elsewhere, steel mills in provinces including Jiangsu and Zhejiang have also been affected by limited power supply, consulting firm Mysteel said.

It added that the market was surprised by this government intervention.

UBS analyst Hubert Tang estimated the nation's steel supply could drop by 10 to 15 percent this month following the production disruption.

On the Shanghai Futures Exchange, the January steel reinforcing bar contract rose 4.8 percent to settle at 4,584 yuan (US$675) a ton.

China has vowed to cut energy consumption by a fifth by the end of this year from the 2005 level. A 3.2 percent rise in energy usage level in the first quarter has prompted the central government to unveil a series of measures including closing obsolete industrial capacity and raising power rates for energy-intensive firms.

"Local governments are getting more serious than ever to achieve the energy efficiency target by simply cutting power supply, a disruptive yet effective measure," Tang wrote in a note. "We believe this trend is likely to continue in coming months."

He added big mills could benefit from the government measure as most have captive power supply.

"Big mills pay relatively higher attention to energy saving and emission reduction this year. In contrast, small players face a much bigger pressure to shut down," said Huang Jing, a Huatai United Securities analyst.