China Steel Exports Highest For Ten Months

China's steel product exports in May hit their highest monthly level since July 2007, showcasing a modest return of heavy outflows after the world's biggest steel maker raised export taxes early this year.

Exports rose 16 percent from a month earlier to 5.56 million tonnes, the China Customs Administration said on Wednesday. Exports in the first five months of the year, however, fell 20.8 percent from a year earlier to 21.72 million tonnes.The export rebound reflected higher international prices that have been encouraging Chinese steel mills to ship out more products, analysts and traders said, adding that they believed the figures were likely to rise gradually in coming months. "We have a consistent view that the global market needsChinese steel to meet rising demand, while on the other handChina needs to export due to its large scale industry," saidMacquarie Bank analyst Henry Liu. "I think Chinese steel product exports are recovering after several months of relatively weak trade, which have tightened global steel supply and pushed up prices."

China, which is worried about the threat of rising inflation as it rebuilds after a severe earthquake in southwestern Sichuan province, has called on the country's steel mills to stabilise steel prices in the domestic market. But this may have encouraged domestic steel makers to export their products, traders said, as the mills are also facing pressures from price increases for blast furnace feedstocks such as iron ore and coke.

After its steel product exports skyrocketed to a record 7.16 million tonnes in April 2007, China removed tax rebates and raised duties on exports, aiming to curb its politically sensitive trade surplus and discourage investment in resource-intensive and polluting industries.

However, trade sources said Beijing was not likely to adopt any further policies to discourage exports in the near term as a result of last month's export rebound, as the rise was mild, while some traders believed that too many tax adjustments in the past year had triggered harsh complaints from major steel mills. China imported 38.91 million tonnes of iron ore in May, retreating from a record 42.8 million tonnes in April but still the second-largest volume on record, the customs data showed.

In May, a Chinese industry group urged major steel mills to limit their iron ore imports after port stocks in northern China were estimated to have surpassed a record 80 million tonnes and imports continued to arrive faster than stocks could be sold. But many steel mills are still building up stocks, traderssaid, as they expect strong demand in coming months as pollution control measures ahead of the Olympic Games in Beijing in August force local iron mines in the region to halt operations. "The impact on the iron mines, as well as other mining sectors, would be more serious than on the steel mills, as the government will strictly control the sale and use of explosives," said a trader based in Hebei province surrounding Beijing. Asian steel makers are locked in iron ore term price negotiations with miners Rio Tinto and BHPBilliton which are trying to get a better oreprice for the year that began on April 1 than that achieved byBrazilian miner Vale.

Source: Reuters