UPDATE 3-China Dec steel output up, first rise in 6 months

SHANGHAI, Jan 22 (Reuters) - China's crude steel output rose 7 percent in December for the first time in six months, in contrast to sharp drops in neighbours Japan and South Korea, as a massive government spending plan pushed mills to lift run rates.

Production may further increase in the coming months as China is one of the few countries expected to show a small growth in output this year, encouraged by the spending plans, though global output is seen falling by 7-8 percent, analysts said.

"As demand improved and prices rebounded, many Chinese large- and medium-sized steel mills in December restarted some of the production capacity they had previously closed," said Zeng Jiesheng, an analyst at industry consultancy Mysteel.

"And the momentum would last in January and February...We expect steel production in China will increase 1 or 2 percent in the first half this year but the second-half production forecast is not yet available due to the unclear economic picture."

China's December crude steel output rose by 7.3 percent to 37.79 million tonnes from 35.19 million in November, marking the first monthly rise in six months as production has fallen steadily from a record high of 46.9 million tonnes in June.

The figure, however, showed a 10.5 percent drop from the same period a year ago, confirming a sharp contraction in the commodities market since late last year as a result of a worsening economic slowdown.

For the whole of 2008, crude steel production from the world's biggest steel consumer and producer rose 1 percent to 501 million tonnes, data issued by the National Bureau of Statistics showed on Thursday.

For a detailed China 2008 steel and coal production table, please click on

For a graphic of China's steel production, click on

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The recovery in steel production in December comes as China plans to spend nearly $600 billion to spur its slowing economy, fueling a 25 percent rise in steel prices in just two months from a two-year low in late November.

Some steel mills, including Baosteel, have raised steel prices in recent months, reflecting improved market conditions in China but at the same time raising concerns the country's improved output and moves to encourage exports may hurt any recovery in global steel prices.

China's steel industry utilisation is running at around 70 to 80 percent, already up from around 60 percent in early November, and nearly double the 40 percent seen in the United States, according to Macquarie.

China also saw its steel exports rising 7 percent in December on the month as it scrapped an export tax on high value-added steels, such as cold-rolled products, which are widely used in autos and home appliances and have dire demand prospects.

Although its massive infrastructure spending is driving the recovery hopes on long products such as rebar, wire rod and sections, cold-rolled steel is under severe pressure due to the global recession.

For a graphic of China's steel exports, click on

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Japan said on Wednesday its crude steel output tumbled 28 percent from a year ago to its lowest in nearly a decade, as automakers, including the world's biggest carmaker, Toyota Motor , expand production cuts.

Toyota, the biggest single customer for Japanese steelmills, is cutting production along with rivals as drivers delay big-ticket buys in the recession, leaving dealers' lots awash in unsold cars.

On Thursday, the World Steel Association said global output fell 1.2 percent to 1.3 billion tonnes last year as production tumbled 24 percent in December, when global steelmills extended supply cutbacks to counter slumping demand.

Both HSBC and Macquarie expect global steel output to fall to 1.23 billion tonnes this year.

(Reporting by Alfred Cang and Miyoung Kim in Seoul; Editing by Clarence Fernandez) Keywords: CHINA STEEL/OUTPUT

(alfred.cang@thomsonreuters.com; +86 21 6104-1763; Reuters Messaging: alfred.cang.reuters.com@reuters.net)

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