A Chinese expert has called for reducing steel output in an effort to straighten out market order and stabilize prices, which saw a downward trend starting from April.

Zhou Wei, an industry analyst, said the most effective way to control falling steel prices is to reduce supply.

She noted that if her suggestion is heeded steel prices would stabilize as early as in September this year.

On Monday, the China Iron and Steel Association also called on steel producers and traders to protect market order to avoid sharp price fluctuations on its website.

It blamed the current chaos in the domestic market on speculation.

An official of the association said the prices of wire and threading steel have fallen below the production cost.

"It's an abnormal phenomenon," the official said.

In the first five months of this year, China's steel production increased by 25.43 percent, the association said. Meanwhile, China imported 10.7 million tons of steel and exported 9.37 million tons of steel, making the overall supply and demand balanced.

Officials from the National Reform and Development Commission confirmed that the state will issue no more strict macro-control measures for the industry as the iron and steel firms' losses have increased to such an extent so as to affect the smooth operation of the national economy.

However, they maintained that the current macro-control measures will still be in effect.

Steel prices, which saw a soaring rise in China after the country accepted a 71.5 percent price hike for iron ore in an agreement with international suppliers in February, began falling since the government adopted a series of macro-control measures.

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

In April, the average price of plates on the domestic market dropped by 400 yuan (48.37 dollars) per ton, down 6 percent over the same period of the previous year. The price of cold-rolling plates fell 1,000 yuan (121 dollars) during the same period in northern China.

The administration further decided to lower the export draw back policy for steel from 13 percent to 11 percent starting on May 1. The move aims to discourage exports to ensure the domestic demand for steel.

The steel industry is estimated to lose 4.7 billion yuan (362.76 million dollars) in profits this year due to the policy.

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.

Currently, there are more than 800 iron and steel firms in China, whose steel output is projected to climb to 350 million tons this year, said the China Iron and Steel Association.

(Xinhua News Agency June 23, 2005)