Fixed asset investment in China's steel sector, the biggest in the world, tumbled in the first quarter of this year as a result of the State's macro economic controls, an industry organization said Wednesday.

The steel sector's fixed asset investment stood at 33.22 billion yuan (US$4.01 billion) in the first quarter, down 278 million yuan (US$33.57 million) or 1.4 percent from the same period of last year, according to statistics from the China Iron and Steel Association.

This is in sharp contrast to the staggering growth of 106.4 percent in fixed asset investment in the steel sector in the first quarter of last year.

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

"The tumble was the positive result of the nation's macro economic control policies and will help curb blind expansion of low-level production capacity in the sector," Luo Bingsheng, vice-chairman of the steel association, said yesterday.

The steel sector was one of the most overheated industrial sectors in China last year, along with aluminium and cement, boosted by high steel prices and fat profits.

Zhou Xizeng, an analyst with CITIC Securities Co Ltd, predicted that investment in the steel sector would continue to decline this year due to the macro economic control policies.

"The investment in the sector was too profligate last year, and it should be further cooled down," Zhou 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.

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

Steel output in China reached 77.79 million tons during the period, up 23.83 percent from a year earlier, according to statistics.

"We should stay vigilant to prevent the resurgence of excessive investment in the sector this year," Luo said.

"However, we should continue to support the large-and-medium-sized steel 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.

Growth of Chinese steel makers profits will decelerate this year because of mounting costs, he said.

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.

That growth was down from more than 60 percent last year.

Production costs of domestic steel makers will grow by some 15 percent this year from last year, due to price increases of iron ore, coal and power, he said.

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

China saw a jump in its steel exports and a drop in imports from January to March this year, mainly due to domestic steel prices being lower than prices on the international market.

The nation's steel exports surged by 319 percent year-on-year to 8.38 million tons in the period, statistics reveal.

Meanwhile, China imported 6.74 million tons of steel, down 46.08 percent.

"However, China's steel exports will be restrained but imports will be boosted this year by the shrinking gap between prices in the domestic and international markets since late last year," Luo said.

"Prices in the domestic and international markets will possibly move to the level of where they were at the beginning of 2003," he said.

The gap between domestic and international price indices stood at 10.89 percent at the end of last month, down from 21.48 percent at the beginning of this year and 41.23 percent last September.

China is considering reducing its steel export tax rebate from 13 percent to 11 percent, to control the nation's steel shipments to foreign countries.

(China Daily April 28, 2005)