U.S. steel prices are expected to climb from their current level throughout the year, but the slope is expected to be very moderate.

China, the force that has rocked the global steel industry the past two years, will continue to influence domestic and world steel markets in 2006, analysts say. Producing more than 350 million tons of steel in 2005 -- 35 percent of the global total -- China has the capacity to determine the fate of the world steel marketplace.

China went from an importer of steel in 2004 -- when U.S. prices climbed to record highs and produced record profits for American steel companies -- to becoming a net exporter in 2005. That change plus, more importantly, the high levels of excess of inventory at steel service centers during the first part of the year, tempered the 2005 market and caused prices to decline.

Inventory levels currently are under control, at less than a three-month level.

U.S. steel companies are keeping the market in balance by exhibiting production and price discipline, said analyst Michelle Applebaum, of Highland Park-based Applebaum Research.

For example, Mittal Steel USA recently announced the closing of its hot metal facilities at the former Weirton Steel in West Virginia because lower demand for its steel slabs could be met by other plants with lower costs. And U.S. Steel Corp. said it will adjust production at its other plants when it brings its rebuilt jumbo blast furnace back on line at Gary Works later this month.

But scrap metal prices also have fallen, which means consumer demand is down, said analyst Charles Bradford, president of Bradford Research in New York. And domestic prices are higher than prices in Europe or Asia.

"It's so big a spread, we're going to see a lot more imports," Bradford said. "I expect U.S. prices to trend lower."

Currently, the price differential between domestic and foreign flat-rolled steel prices is $200 a ton, but shipping and other costs reduce it to about $75 per ton for domestic buyers, "enough to be seductive" and cause a rise in imports and drop in U.S. prices, said Applebaum.

Most of China's exports went to Japan and other Asian countries, but those imports, which were mostly commodity grade, allowed those countries to export their higher-grade steel stock.

"It's like a bowl of jelly," Bradford said. "If you push down one place, it pops up someplace else."

Most of the steel China exported to the United States was in the form of wire rod, Bradford said.

"I don't think it has much impact on prices, but a psychological one," he said.

MEPS of London said it expects Asian imports will arrive into the United States in large quantities before the end of the current winter season.

"The North American premium over Asian values is likely to be eroded," the consulting firm says. "We forecast transaction values in North America falling quite quickly through springtime and into summer... We expect prices to stabilize at their reduced levels later in the year. We believe that more discipline will be exerted in the supply situation in Asia as the year progresses. If not, a wave of anti-dumping cases will be brought -- thus forcing the issue."

Applebaum said Chinese officials have indicated that country is expected to cut its annual steel production capacity by 55 million tons in the coming five years. The country currently has almost 1,500 steel producers. Although only 20 are producing more than 1 million tons annually, more steel plants are under construction.

If the Chinese overproduce by as little as 15 percent because of either lower economic growth or new plants concurrently coming on line, there would be more than 50 million tons of excess steel on the world market, Applebaum said.

"The dilemma that the world industry and the Chinese government face here then is huge, because the converse is also true," she said. "What if China is unable to expand capacity quickly enough, and demand grows faster than supply on a short-term basis?"