China cancelled 30-40 per cent of its global steel import contracts in the past few weeks. Analysts said the move might affect India's export earnings in the next few months.

The contracts were cancelled because Chinese steel stocks were piling up and prices falling. Chinese steel prices have dropped from $380 a tonne in October-November 2002 to $280 per tonne now. Several Chinese importers are scrapping old contracts and signing fresh ones at lower prices.

With the supply in China being more than demand there has been a fair amount of speculative buying there.

"There may be a correction in demand in China, which can affect global steel prices," an industry expert said.

"Global steel prices may drop a little, and India may feel the pressure later. However, it is tough to assess the exact impact of the development in China," A S Firoz, chief economist at the joint plant committee of the ministry of steel, said.

The Indian steel industry depended heavily on exports in 2002-03.

According to official data, production increased 5.9 per cent, and local demand 4 per cent.