Steel prices, which saw a soaring rise in China after the Shanghai-based largest steelmaker, Baosteel, accepted a 71.5 percent price hike for iron ore in an agreement with international suppliers in February, has begun sagging since the government adopted a series of macro-control measures, industry insiders said.

The steel price in eastern China declined by 70 yuan (US$8.46) per ton following the decision of the Ministry of Finance and the State Administration of Taxation to abolish the export tax rebate policy for billet starting on April 1.

The industry is estimated to lose 3 billion yuan (US$362.76 million) in profits this year due to the policy.

The losses may rise further to 4.7 billion yuan (US$568.3 million) since the administration decided to lower the export drawback policy for steel from 13 percent to 11 percent starting on May 1. The move aimed to discourage exports to ensure the domestic demand for steel.

The government's macro-control measures aim to ensure a "soft landing" of the nation's overheating economy, which grew 9.5 percent in the first quarter of this year.

"March 31, 2005 is a turning point for China's domestic steel price," said Chen Ming, director in charge of the information consultant department of the Shanghai Steel Electronic Trading Market.

Over the past month, the average price of plates on the domestic market dropped by 400 yuan (US$48.37) per ton, down 6 percent over the same period of the previous year, Chen said. The price of cold-rolling plate fell 1,000 yuan (US$121) during the period in northern China.

He attributed the dramatic rise and fall of the steel prices to the macro-control measures of the government, which caused agents to dump steel products, and the recent fluctuations of the foreign exchange rate on the international market.

The government's determination to curb the soaring housing prices this year is also a factor, industry insiders said. This policy will curb the domestic demand for steel.

"It's likely that the steel price will continue to fall as the supply is increasing and the demand is declining," said Chen.

According to data provided by the trading market, currently, there are 460,000 tons of steel stockpiled in Beijing, 160,000 tons stockpiled in Tianjin. Another 400,000 tons of steel are stocked in Shanghai, and 500,000 tons stockpiled in south China's Guangzhou, and 150,000 tons in Shenyang in northeast China. 

An executive meeting of the State Council on April 20 called on China's steel mills to adjust product structure, reduce energy and resource consumption, regroup and adopt measures to prevent from overexpansion of their production capacity.

Currently, there are more than 800 iron and steel firms in China.

China's steel output has ranked first in the world for the past nine consecutive years, accounting for 14 percent of the world's total. In 2003, the steel output reached 220 million tons, and is projected to climb to 350 million tons this year, according to the China Iron and Steel Association.

Meanwhile, China's steel demand has risen 20 percent a year on average since 2000. Experts predict that China will maintain high growth this year. The country's demand for steel will exceed 340 million tons. 

(Xinhua News Agency May 23, 2005)