China’s determination to enforce energy efficiency measures on its steel industry, including potential mill closures, boosted stocks in the sector on Tuesday.

The measures, announced earlier in the year, create the prospect of lower steel production in September, with some analysts forecasting falls of about 10 per cent. The prospect of falling steel output helped lift stocks across Asia.

Hong Kong-listed Ma’anshan Iron and Steel was up 5.7 per cent by Tuesday’s close, with Angang Steel up 3.8 per cent. Korea’s Posco rose 4.5 per cent, and JFE Holdings was up 2.4 per cent in Tokyo.

Ian Roper of CLSA said: “China’s steel production could be down 10 per cent in September, or 5m tonnes.

“Local authorities are trying to reach the energy efficiency targets any way they can,” he said, adding that 3.5m tonnes of the cuts would be from Hebei province, which produces a quarter of China’s steel.

The Chinese government aims to reduce energy intensity, a measure of energy consumed relative to gross domestic product, by 20 per cent by the end of this year, compared with 2005 levels. Premier Wen Jiabao warned this spring that he would use an “iron hand” to close down factories and meet the targets.

The recent mill closures are the clearest sign yet that the government directives would be taken seriously by local officials, who often have an interest in keeping mills open to boost tax revenues. In Wu’an city in Hebei province, 16 mills will be closed for 20-30 days, according to Chinese media reports. Scattered reports of mill closures and output cuts over the last week suggest that the closures will be widespread but temporary.

“People are seeing the execution of the policy actually happening, and that triggered the market movement,” said Christina Lee, steel analyst at Macquarie. “A lot of policy initiatives go nowhere because of poor execution.”

Chinese hot-rolled coil and rebar prices have performed strongly since they dipped in July, and Chinese hot-rolled coil prices rose 3.5 per cent on Monday. China’s steel production started falling last month, from 629m tonnes annualised production during the first 10 days of August, to 624m tonnes in the second 10 days of August, according to official data.

China’s steel exports are expected to fall as a result. “Korean steelmakers should be the biggest beneficiary because imports from China are 20 per cent of the Korean steel market,” Ms Lee said, naming Hyundai steel as a particular beneficiary in a research note.