More of the surplus is heading to other countries. In the US, the sixth-largest buyer of Chinese steel, hot-rolled coil imports cost about $683 a ton on Sept 19, the most since June 2012, according to data from Metal Bulletin. That compares with $487.50 for Chinese hot rolled coil exported on a free-on-board basis, the lowest since November 2009. The premium of about $196 is the biggest since December 2008.

Developing economies are buying a growing share of Chinese output, overtaking the US, which was the second-largest buyer in 2007.

South Korea is the biggest so far this year, followed by Vietnam, the Philippines, Thailand and Singapore, according to customs data. Brazil, a former net exporter of steel, has climbed to 10th place from 24th seven years ago.

China "exports to everywhere", said Curtis Zhu, a London-based analyst of iron-ore and steel markets at consultant Wood Mackenzie Ltd. "They've been exporting to other emerging markets, especially Southeast Asian countries."

Some of those shipments may spark trade disputes that could reduce purchases.

The US started a probe Sept 17 into alleged dumping of steel shelving units at below-cost prices, and the government set preliminary duties on some wire rod imports from China in July. The European Union began investigations in June and August and is considering whether to renew tariffs for five more years on wire rod. Thailand imposed duties on cold-rolled products in January while Brazil started a probe on some steel pipe products last year.

China won't be able to increase exports next year "without encountering resistance", said Shi Shengwu, a manager at the international trade unit of Wuhan Iron & Steel Co, a producer based in Wuhan, Hubei province. "It's a very touchy issue."

China's own demand has stalled. During the first eight months of the year, consumption fell 0.3 percent to 500 million tons, Wang Xiaoqi, vice-president of the China Iron & Steel Association, said at a conference last week in Dalian, Liaoning province.

China's crude steel capacity will rise to 1.14 billion tons this year, compared with 750 million at the end of 2010, according to custeel.com estimates. The country will produce 793 million tons this year, or 49 percent of global output, Morgan Stanley said in a July 8 report.

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