China Steel Exports 'Hard to Sustain' on Oversupply (Update1)

BEIJING, May 29 -- Strong growth in steel exports from China, the largest producer, will be "hard to sustain," as the global market is oversupplied, said an official from the China Iron & Steel Association.

"China's steel production faces a predicament after a fairly good start in the first four months," Luo Bingsheng, vice chairman of the association said at a conference in Shanghai today. "Production costs will continue to rise, while the sales prices of steel products have been falling since mid- April."

Chinese steel product exports have doubled in the first four months of the year as the global economy recovers. Crude steel output in China rose 27 percent to a record in April. Benchmark steel prices have dropped from an 18-month high in April, according to Beijing Antaike Information Development Co.

"Supply exceeds demand in the global steel market," Luo said. "The strong growth we witnessed in steel exports in the first four months will be hard to sustain."

Rising production by Chinese steelmakers has spurred competition for the purchase of iron ore, a raw material, and driven up contract prices by 90 percent. Steelmakers have to raise prices to pass on the higher raw material costs, the World Steel Association said this month.

"Apparent global demand for crude steel is expected to grow by 10.7 percent in 2010, but production jumped 31.8 percent in first 4 months," Luo said. "Competition will be more intensive."