After a high of several months, the average price of hot-rolled products in the Chinese market has seen a marginal drop of $5 to $10 per tonne in the last one week.

Industry experts said that the drop in prices may have an impact on the global and Indian steel prices at a later stage.

The average price in China is about $390 to $400 per tonne. A senior government official said that though Indian exports to China will remain unaffected, the domestic steel producers will see a squeeze in their margins.

"Export business will still remain lucrative for the Indian steel producers as the steel prices in China are much higher than the global price. However, the margins will shrink for the steel producers," he added.

Analysts tracking the sector said that the drop in price is primarily due to inventory pile-up in China.

"There has been a lot of speculative buying there and the supply has been much more than the real demand. There could be a correction in steel demand in China in the next three months and that may have a negative impact on the global steel prices," an analyst said adding that the global steel prices have been mainly determined by the demand scenario in China.

It is estimated that China is importing close to 30 million tonnes of steel every year and with the United States imposing various restrictions on steel imports, most Indian steel producers have been looking at China.

As per government data, India exported a total of 2.5 million tonnes of finished steel and about 250,000 tonnes of semis during April-December 2002-03 as against about 2.05 million tonnes of finished steel and about 205,000 tonnes of semis during the same period in 2001-02.