China's steel sector remains fever pitched despite persistent government calls to cool overheating investment, says an industry organization.

Steel output in China surged by 26.38 percent year-on-year to almost 61.47 million tons during the first quarter of 2004, the China Iron and Steel Association said yesterday.

Manufacturers in China produced 67.26 million tons of steel products during the period, an increase of 29.47 percent.

Fixed asset investment in the steel sector jumped by 107.2 percent to 33.5 billion yuan (US$4 billion) from January to March from the same period in 2003, the association said.

The steel output capacity grew by 16.03 million tons during the period.

"It appears that the overheating investment in the sector has escalated this year," said Luo Bingsheng, executive vice-president of the association. "We need to pay very close attention to its development."

The central government has called for measures, including controls on bank loans, to cool investment in the sector, as well as the aluminium and cement industries.

"But we should not control the investment in the steel industry in an across-the-board approach," Luo said.

"Investment in small inferior and heavily polluting steel producers should be strictly bridled.

"At the same time we should continue to support the high-value-added projects being undertaken by large and medium-sized enterprises."

Shanghai Baoshan Iron and Steel Corp, China's biggest steel maker, yesterday revealed that it wants to increase its annual capacity to 20 million tons by 2006 and to 30 million tons by 2009. It produces more than 10 million tons at present.

The company expects to control more than 30 percent of the domestic steel plate market by 2009.

"The investment fever is mainly being prompted by domestic demand outstripping supply," Jiang Nan, a steel analyst with Citic Securities Co, told China Daily. "It is not easy to boost supply in a short period of time to feed demand.

"The government is concerned about a possible oversupply domestically, due to huge investment in the industry in the long term and a shortage of raw materials and energy and insufficient transport capacity in the short term."

The nation's iron ore imports jumped by 48.27 percent year-on-year to 50.7 million tons from January to March, greatly in excess of the steel association's expectations.

It predicted that China would import around 8 million tons of coking coal this year, up 5 million tons from 2003.

"Steel prices on the domestic market will continue to fluctuate at high levels this year because of strong demand," Luo said.

But they are still lower than prices being paid on the international market, which will slow down China's steel import growth for the year and accelerate exports, he said.

For example, the average steel plate price in China is about 800 to 1,000 yuan (US$96.6-US$120.8) per ton less than international prices.

Steel product imports reached a record high of 10.08 million tons during the first quarter of the year, up 17.49 percent from the same period in 2003.

But the growth rate was down from 74.69 percent in the first quarter of last year.

Meanwhile, China exported 1.62 million tons of steel products, rising 6.72 percent from the corresponding period of last year.

Profits of major steel makers in China more than doubled from January to March thanks to strong sales and bullish steel prices, the association said.

The nation's 66 key steel companies reaped 19.96 billion yuan (US$2.41 billion) during the period, an increase of 126.12 percent from a year ago.

Their sales shot up by 71.86 percent year-on-year to 217.35 billion yuan (US$26.25 billion) during the period.

They had 4.06 million tons of steel product in store at the end of last month, up 1.21 million tons from January.

(China Daily April 27, 2004)