China steel production to remain strong in H2, 2011 -CISA

Fri Jul 22, 2011

* China's steel product inventories down for 4th month in row
* Demand to remain strong on high fixed asset spend
* Oversupply, tighter credit and rising energy prices weigh on market

SHANGHAI, July 22 (Reuters) - Steel output in China, the world's top producer, will stay strong in the second half of this year as investment in infrastructure and social housing underpins demand, the country's steel association said on Friday.

"China will continue to maintain high fixed asset investment for the remainder of the year, with water conservation and social housing construction coming on top, which will boost steel demand," the China Iron & Steel Association (CISA) said in its monthly market report.

Despite government credit curbs and falling exports weighing on an already oversupplied sector, China's crude steel production is expected to post increasingly higher year-on-year growth over the remainder of the year.

Data from CISA earlier this week showed that daily output of crude steel from Chinese mills fell 3.1 percent in the first 10 days of July to 1.955 million tonnes, but analysts expect the decline will be limited, with producers of construction steel running close to full capacity.

China's steel firms have been turning out more than 1.9 million tonnes a day since February, from around 1.7 million tonnes last year.

China's steel production may maintain its breakneck pace in the second half of 2011 as a construction boom buoys demand, putting it on track for another record year despite the credit curbs.

Steel output in China amounted to 350.5 million tonnes of crude steel from January to June, up 9.6 percent from a year ago.

"Long steel products will benefit from affordable housing and rural water conservation projects, while flat steel products may face a worsening supply glut," CISA said.

In the 26 major cities monitored by CISA, total inventories of five main steel products -- rebar, wire rod, hot-rolled coil, cold-rolled coil and plate -- fell 290,000 tonnes to 14.32 milion tonnes in June from the previous month, the fourth consecutive monthly fall.

Slower growth in steel-consuming sectors and chronic oversupply problems dragged steel prices down in June, with CISA's long product index falling 0.87 percent and its flat product benchmark dipping 1.59 percent from May.

But high raw material prices will limit the scope for further price cuts, CISA said.(sourced Reuters)