Frbiz.com Reported China 2010 steel output seen up 4 pct at 590 mln T

China's steel output in 2010 is expected to rise four percent to 590 million tonnes, from 565 million tonnes in 2009, said a senior analyst at UBS on Dec 18.

China's decision to tighten credit, and the destocking of inventories built up since last year were likely to weigh on steel demand and production, director of Equities Research at UBS Securities Hubert Tang said.

Consumers and market players stocked up on steel in the last quarter of 2009, betting on price increases or preparing for new projects.

"A large part of that demand generated in the last quarter, or even the second half of the year, has turned into stocks in the system. Such stocks will be able to be released sufficiently this year," Mr Tang said.

An imminent liquidity squeeze would also cool down the construction boom, and make inventory-building more difficult, he added.

He said UBS expected China to enter a rate-rise cycle in the second quarter of this year, and the timing and effect of the tightening policies would influence steel production.

"Steel prices and output will be high in the first half, and will weaken in the second half. Prices will probably continue to rise in the first two quarters on rising costs -- prices for iron ore and coking coal are both rising," Mr Tang said.

China's steel production soared in 2009, beating forecasts of government and industry officials, as the government's mammoth $586 billion stimulus package, heavy on infrastructure, spurred demand.

Record-high auto sales and incentives for consumers to buy home appliances also helped increase demand for steel.

"Infrastructure building and the real estate sector accounted for about 50 percent of domestic steel demand in 2008. In 2009, the percentage likely grew to 55 percent or higher," Mr Tang said.
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