A steel industry body said Wednesday that the central government's macroeconomic policies have started to take effect in the steel sector, with overheated investment being reined in.

The China Iron and Steel Association said that steel sector investment grew by 54.7 percent year-on-year to 84.8 billion yuan (US$10.2 billion) in the first six months of this year.

The growth rate was down from a staggering 107.2 percent during the first quarter of this year, but the association struck a note of caution, calling for an all-out effort to ensure that investment does not spiral out of control again.

Statistics revealed that June's investment growth rate declined 16.4 percent year-on-year.

Association Vice-President Luo Bingsheng said that the slowdown was primarily a result of the central government's measures to prevent overheating in the steel, aluminium and cement sectors.

Most investment in the steel industry is now being directed towards technical upgrading and high-grade projects, rather than building more low-grade production capacity.

This indicates that the sector's investment orientation has markedly improved, said Luo.

Almost two-thirds of total investment in the sector was ploughed into technical upgrading in the first half of this year, according to statistics.

But Luo warned that the sector's "overall investment scale remains too high and we should continue to carry out central government's macroeconomic control measures to preserve the achieved results and further cool down investment."

Macroeconomic control measures should be fully implemented to strengthen land-use and bank loan management to prevent a repeat of overheated investment in the steel sector, said Jia Yingsong, an official from the National Development and Reform Commission, one of the nation's leading industry watchdogs.

New investment regulations issued last week say that any new steel manufacturing projects must be submitted for approval to the State Council.

As a result of investment controls in the sector, growth of domestic steel demand and output has turned to "rational from sensational levels", he said.

Steel demand reached 150.7 million tons in the first half of this year, a year-on-year rise of 19.23 percent.

The growth rate was down 9.08 percentage points from that in the first quarter.

Steel output rose by 21.09 percent year-on-year to 124.75 million tons during the first half of 2004, according to statistics. The growth rate dipped by 5.29 percentage points from that in the first quarter.

China's total steel demand and output will rise by 14.8 percent and 13 percent to 307 million tons and 277 million tons respectively this year, the association predicted.

"Prices on the domestic steel market have also stepped onto a reasonable track after strong fluctuations," Luo said.

The domestic steel price composite index jumped to a record high of 120.14 points in March, but plunged to 108.56 points at the end of May.

It currently stands at a more than 110 points.

China's steel imports totaled 18.04 million tons from January to June this year, a year-on-year fall of 457,400 tons or 2.47 percent, according to statistics.

This is the first half-year steel import decline since 1998.

"This is mainly generated by higher international steel prices than those on the domestic market," said Qi Xiangdong, the association's deputy secretary-general.

International steel market prices are 30 percent higher than those in China, Qi said.

These higher international prices greatly increased China's steel exports.

The nation exported 4.56 million tons during the first half of this year, surging 29.32 percent from a year earlier.

The growth was up by 22.6 percentage points from that in the first quarter.

"But we should be vigilant about the possible negative impact of steel imports on the domestic market in the second half of this year, if prices decline in the international market while climbing at home," Luo said.

The steel sector will continue to suffer from shortages of coal, coke, iron ore and transportation capacity during the second half of this year, Luo pointed out.

(China Daily July 29, 2004)