Fixed asset investment in China's steel sector, the biggest in the world, fell to 33.2 billion yuan (US$4 billion) in the first quarter of the year, down 278 million yuan (US$33.6 million) or 1.4 percent from the same period of last year, according to the China Iron and Steel Association (CISA) yesterday.

"The decrease was the positive result of macroeconomic control policies and will help curb blind expansion of low-level production capacity in the sector," said Luo Bingsheng, vice-chairman of the association.

The reduction was in sharp contrast to staggering year-on-year growth of 106.4 percent in the first quarter of 2004, a year when it was one of the most overheated industrial sectors, along with aluminum and cement, boosted by high prices and fat profits.

The steel sector was the only one of China's main industries to experience a fixed asset investment decline from January to March this year, said association officials.

Zhou Xizeng, analyst with CITIC Securities Co Ltd, predicted that investment in the steel sector would continue to decline this year due to State economic policies. "Investment was excessive last year, and it should be further cooled down," he told China Daily.

Fixed asset investment in the steel sector surged to 178.08 billion yuan (US$21.51 billion) last year, an increase of 26.9 percent from 2003. Steel output reached 77.79 million tons during the period, up 23.83 percent on a year earlier.

However, Luo said domestic steel production still grew "too fast" in the first quarter of this year, generating continuous supply shortages of iron ore, coal and power.

"We should stay vigilant to prevent the resurgence of overinvestment this year," said Luo.

"However, we should continue to support large- and medium-sized companies' attempts to move into high end products, such as cold-rolled steel sheets, which are in short supply in the domestic market," he added.

China's top 68 steel companies reported 25.04 billion yuan (US$3.02 billion) in profits in the first quarter of this year, up 18.58 percent from a year ago, but Luo said growth of profits should decelerate this year because of mounting costs.

The world's three main mining groups - BHP Billiton, Rio Tinto and Companhia Vale do Rio Doce - raised iron ore prices by 71.5 percent this year, increasing costs for Chinese steel firms by some 13 billion yuan (US$1.57 billion), he said.

China saw 319 percent more steel exports and 46 percent less imports from January to March this year, mainly due to domestic steel prices being lower than prices on the international market.

"Exports will be restrained but imports boosted this year by a shrinking gap between prices in the domestic and international markets since late last year," predicted Luo.

China is considering reducing its steel export tax rebate from 13 percent to 11 percent, to control steel shipments overseas.

(China Daily April 28, 2005)