'China became top steel exporter in early 2006'

Paris, Nov 9: China overtook Japan and the EU to become the world's biggest steel exporter in the first half of this year, the OECD said on Wednesday, highlighting a source of mounting tension between Beijing and world trade rivals.

The Organisation for Economic Co-operation said the industry had had a good run for five years due to strong economic growth but now risked increasing output capacity more than needed.

''Developments have been dominated by China becoming the world's largest exporter of steel products in the first half of the year, surpassing Japan, Russia and the European Union,'' the statement issued after a two-day meeting said.

Wolfgang Hubner, a top official on steel industry issues at the OECD, conveyed the degree of concern about the impact of China's export surge.

''Two or three years ago they hardly exported anything,'' he said. ''This could have dramatic consequences for the world,'' he told Reuters.

He said figures provided by Chinese representatives showed the world's biggest steel producer become the biggest exporter in the first six months of 2006. Those figures were not included in the statement but would be made available later, he said.

The tension over steel surfaced in Beijing on Wednesday when the European Union's top trade negotiator, EU Trade Commissioner Peter Mandelson, said the two sides ''may be heading into some difficulty'' over steel.

European and Beijing were creating a working group to tackle the issue, he said. They are already wrangling constantly over Chinese exports of shoes and clothes as well as a flourishing Chinese industry in counterfeit goods that flood Europe.

HOW LONG CAN BOOM GO ON?

The OECD statement said the world steel industry had enjoyed a bumper five years of demand and output growth, although there was a risk of less vibrant times if economic growth eased.

Continued capacity expansion could endanger positive market developments, Risaburo Nezu, chairman of the international OECD steel committee on Tuesday and Wednesday, said in the statement.

Crude steel output was set to grow about 8 percent, or by 90 million tonnes, to 1.22 billion tonnes, in 2006, the OECD said.

Chinese steel production reached 339 million tonnes in the first nine months of 2006, up 23 percent from a year earlier.

Elsewhere in Asia, Japan and South Korea continued to show only modest growth, while production was rebounding strongly in the EU, accelerating in Russia and eastern Europe and picking up again in the United States after steep falls in 2005.

Chinese exports rose 81 percent in the first nine months of 2006 from a year earlier, to 28.6 million tonnes, the OECD said.

Import growth had been particularly strong in the European Union and North America. ''Such imports have already forced, or will force, steel mills in these economies to reduce production.'' The statement said the two-day meeting exposed concerns that steel producers had or planned to boost capacity significantly.

Chinese mills are rapidly moving up the value chain as competition strips profit from lower-end steel products, but their rising expertise in higher margin steel -- including stainless steel and automotive steel -- could threaten profits for European mills including Arcelor Mittal and ThyssenKrupp .

REUTERS