RS Platou Markets AS said that steel production in China may fall from June 2011 as the world's biggest producer of the metal rations power, forcing mills to curb output.

The state controlled company said in a statement that regions served by the State Grid Corporation of China, the nation’s dominant power distributor, may face a shortfall of 30 gigawatts this summer. It will further ration supplies in the summer as a drought looms over what may be the country’s worst electricity shortage on record.

Mr Frode Morkedal, a Platou analyst in Oslo, said that "Thousands of small mills will face the challenge of power shortages because the government will first guarantee electricity to residential users." He added that steel production in the country may peak this month and start to drop from June 2011.

According to a Deutsche Bank AG report on May 20th 2011, the shortage may reach 35 gigawatts or 3.7% of the country's capacity in 2010. 35 gigawatts is enough to supply 35 million US households on average.

China's dry spell and reduced hydropower output are intensifying an electricity shortage caused by a combination of rising demand and reduced generation capacity. Some power plants have cut production or even shut, crippled by increased coal prices and government caps on electricity tariffs.

According to data from industry researcher IHS McCloskey, based in Petersfield, coal prices at China's Qinhuangdao port have increased about 15% in 2011.

According to the World Steel Association, China made about 47% of the world's crude steel in April 2011. In the first four months of 2011, it produced 232.6 million tonnes of steel, up by 9.1% YoY.