China will proceed with the reduction of steel exports in 2007, a China Iron and Steel Association official said.

During a conference last week, Qi Xiangdong, CISA Deputy Secretary, said the net export of steel and billets would decrease by 10 million tonnes in 2007, while steel exports would remain at 17.5 million tonnes.

Steel exports have dropped since the government reduced tax rebates on several products towards the end of last year.

Analyst Gu Yaoqiang of Haitong Securities told Interfax the reduction directly resulted from the Chinese government's concerns over the number of trade disputes.

On Feb. 2, the U.S. government lodged a complaint with the WTO against China's trade allowance being used to boost exports in a number of industries, including iron and steel. This is not the first time China has faced this type of trade dispute.

"The main reason for the reduction can be attributed to government worries over possible future trade disputes if China continues to increase steel exports, the Sino-US steel export dispute is the main reason behind the reduction," Gu said.

He also said that since last year, the government has gradually reduced steel exports.

In 2006, China reported steel product exports of 43 million tonnes, and 9.04 million tonnes of steel billets.

At present, it is mainly low-grade steel products that are exported. Based on this, Gu said that the reduction would have a negative effect on the domestic steel market. If the supply and demand balance is disturbed by reducing the volume of exports, there would be a surplus in domestic steel production.

Gu said that future steel prices would probably decrease, "but there will be little impact if the overseas steel market remains stable".

CISA statistics showed that China's 2006 raw steel output exceeded 400 million tonnes, maintaining China's 11-year global lead.

During the last few years, the Chinese government has implemented a series of stricter policies in order to maintain the domestic steel supply and demand balance. As a result, steel production growth is expected to slow in 2007. Even so, analysts still have concerns over a possible domestic steel market imbalance, with supply exceeding demand.

"In my opinion, the government will ultimately change the export focus from low-grade to high-grade steel products, and steel export will recover due to China's superior global manufacturing industry," Gu said.