ALREADY squeezed by higher iron ore prices and falling prices for domestic steel, China's steel industry will be hit by the removal of a tax rebate on some products, analysts said.

The State Council, China's Cabinet, scrapped the 9 percent export tax rebate on 406 products including 46 kinds of steel products, effective on July 15. The removal was beyond market expectations of a cut to 7 percent to ease rising trade disputes between China and other nations as well as to reduce anti-dumping investigations, according to analysts.

"The scrapping of the tax rebate is a double hit for domestic steel mills as prices of the country's steel exports have fallen due to a slowdown in external demand," said Liu Yuanrui, a Changjiang Securities Co analyst.

Steel exports totaled 17.96 million tons in the first five months of the year, an annual jump of 127.34 percent.

"Steel exports are very likely to drop significantly considering the slack demand in the off-season of the third quarter," said Ju Guoxian, an analyst at First Capital.

Domestically the steel industry, already plagued by overcapacity and falling prices since April, is not likely to be profitable with sluggish exports and weaker demand due to the central government's stringent crackdown on the property market, said Liu.

Luo Bingsheng, vice chairman and secretary-general of the China Iron and Steel Association, said some enterprises will lose money this year.

"The average profit ratio of the steel industry was only 3.25 percent, lower than the national average industry profit ratio," he pointed out.

Goldman Sachs Group Inc has lowered its 12-month share-price estimates for Angang Steel Co, Baoshan Iron & Steel Co, Maanshan Iron and Steel Co and Wuhan Iron & Steel Co by as much as 32 percent.

The tax rebate on steel products was unveiled on June 1, 2009, to shore up exports amid the global financial crisis.