China exported more steel in the first 10 months of this year than in all of 2007 as producers sought higher prices beyond the country's saturated market.

Through October, Chinese exports of steel products totaled 73.8 million tons, rising 42.2% from the same period last year, according to the General Administration of Customs. That surpasses a full-year high set in 2007.

In September alone, exports jumped by 73.2% to a single-month record of 8.52 million tons that was broken the very next month, when volume reached 8.55 million tons. At the current pace, China could export more than 90 million tons of steel this year.

Chinese industrial policy has promoted production of steel for domestic use while holding back exports of the metal. In the past, China exported only about 7% of its crude steel output, compared with around 40% for Japan, but that ratio is likely to top 10% this year.

Falling domestic prices of steel have widened a price gap between China and foreign markets, says an industry watcher, explaining the growth in exports. On average, Chinese steel for export commands an estimated premium of 1,500 yuan ($244) per ton over steel sold on the domestic market, which is suffering from overproduction.

In the nine months through September, the top three destinations for Chinese steel exports were members of the Association of Southeast Asian Nations, South Korea and the Middle East, which together accounted for 54% of total volume, according to the China Iron and Steel Association. The association also points to increasing exports bound for the European Union, the U.S., Taiwan and other markets, with growth likely to top 60% this year.

Chinese steelmakers are making inroads abroad. Hebei Iron and Steel Group has agreed to buy a 51% stake in Duferco International Trading Holding, one of the world's biggest steel traders. The Swiss concern is expected to serve as an international vendor for an annual 4 million tons of Hebei steel, an industry source says -- the equivalent of 10% of Japan's steel exports.

Next year, state-run Baosteel Group plans to fire up a new blast furnace with an annual production capacity of more than 10 million tons in Zhanjiang, part of Guangdong Province in southern China. The steelmaker sees this as a base for exporting to Southeast Asia, where it is has begun prospecting for customers, according to a person familiar with the company's plans.

Japanese steelmakers produce mainly high-value-added steel products-- the kind used to make cars, for instance -- so they do not compete directly with Chinese producers. Even so, cheaper Chinese output could depress prices, says a senior executive in Japan' steel industry.

As China's steel exports grow, so too may friction with trading partners. Last month, the U.S. Department of Commerce imposed anti-dumping duties on Chinese steel wire, having determined it was being sold in the U.S. at less than fair value. The European Union began an investigation in August into possible Chinese dumping of electrical steel sheet.