The elevated prices of high-demand steel products have dropped for six consecutive weeks since March.

Although the prices are still 30 percent higher than a year ago, the reduction is seen by the government as a major achievement following its desperate efforts during the past year to cool the country's overheated economy.

The State Development and Reform Commission said Tuesday that the price of steel products dropped about 17 percent, or roughly 750 yuan (US$91), to around 3,440 yuan (US$419) per ton during the past six weeks. The findings are the result of a close watch on steel prices at 22 major markets nationwide.

"The drop mainly came from the government's effort to cool overheating trends in some sectors," said a commission official who asked not to be named.  The official also indicated that the price would continue to fall in the short term owing to increased macro-economic regulations, tightened money supply and administrative intervention.

A stronger US dollar and price declines in raw materials for steel products on domestic and overseas markets are also partly responsible for the decrease, the official said.

According to the information gathered from major steel markets in 22 cities, prices rose at least 1,000 yuan (US$121) per ton in the 12 months leading up to March.

Domestic demand for steel products began to fall in the first quarter but output increased by 29.5 percent, leading to growth in inventories.

Climbing prices spurred investment in steel plants and led to escalating prices for raw materials and energy during January and February. Overall investment in the steel sector stood at 16.9 billion yuan (US$2.0 billion) in those two months, up 202 percent year-on-year, according to figures released by the commission.

By early March, the price of steel products for construction had risen at least 50 percent. Prices for iron ore, steel scrap and coke had jumped by about 200 percent, 50 percent and 40 percent year-on-year, respectively.

However, some economists say that the recent price decline in steel has not changed the economy's overheating trend.

Money is still being injected into already overheated sectors like iron and steel, aluminum, cement, real estate and automobiles.

China's economy grew 9.7 percent in the first quarter of the year, well above the official target of 7.0 percent for 2004.

To curb the trend, the State Council has said that it is determined to punish officials contributing to overheating in problem sectors. Recently, it sent a special team to investigate the construction of a major iron-smelting project in Jiangsu Province.

The investigation to date indicates that the project illegally occupied 436 hectares of land and began construction without approval from the local environmental protection department.

Wang Jiang, vice president of the China Institute of Macroeconomic Research, said the government can play an important role in macroeconomic management.

"But I don't mean that the government should tighten up the economy all around," said Wang. "We need relatively rapid development to create jobs, which many, many Chinese are seeking."

(China Daily May 12, 2004)