China's efforts to raise the costs of steel exports will lead to lower domestic prices in the second half, but then exports may rebound as the price gap widens, a senior industry official has warned on Saturday.

Lower prices at home could again push China to export more to international markets, where prices are high, provoking more State measures to curb overseas sales and leading to "huge fluctuations" in the domestic market, said Luo Bingsheng, vice-chairman of the China Iron and Steel Association.

"That's what we don't want to see," Luo told a conference organized by Steelhome.cn. "The government should step up efforts to eliminate outdated capacity and mills should adjust output based on actual demand to reach a new supply-demand balance."

"It's quite clear now that prices in the second half will fall," said Li Jianshe, marketing manager of Maanshan Iron & Steel Co. "I don't think domestic supply can stop the growing pace."

The government has announced a range of measures, including reducing and removing export tax rebates, imposing and increasing export taxes on some steel products and billets, and requiring export licenses for certain products, to rein in China's swelling steel exports which had more than doubled in 2006.

Exports of China's steel products soared 132 percent to 21.3 million tons between January and April from a year earlier, as steel makers and traders raced to beat the export policy changes, which became effective recently.

"Exports in 2007 may be a bit lower, or around the same level, as last year, because exports in the second half will fall from that of the first four months," Luo said.

Domestic steel prices had been recovering this year until May, which saw a modest correction. Luo said mills' profitability in the second half will be lower than in the first four months, but should still be at least on a par with last year's.