SINGAPORE/SHANGHAI: China's steel production could 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 government's credit curbs.

China, which makes nearly half the world's crude steel, is expected to produce at least 700 million tonnes this year as mills cash in on rising prices, with apparent consumption up nearly 9 percent so far in the first six months.

That means China's demand for iron ore, the key raw material to make steel will remain strong, keeping spot prices, which have more than tripled since late 2008, high.

Makers of long steel products used in construction are capitalising on Beijing's campaign to build cheaper homes and a push to boost infrastructure, particularly in the country's less developed western regions, with profit margins recovering to double digits from the low levels of last autumn.

The construction sector seems to be the only bright spot in China's economy. Output of the country's manufacturing industry, also a key user of steel, shrank in July for the first time in 12 months, reflecting the impact of monetary policy tightening.

To try and cool asset prices, China aims to build 10 million low-cost houses this year, with the bulk of the construction only expected to begin in the second half.

The housing plans, coming on top of other infrastructure ventures including water conservancy and high-speed railways, mean China's daily crude steel output, which averaged a record high of around 2 million tonnes in June, will stay close to record levels in the coming months.

The project is boosting demand during the summer months, when construction activity normally thins before recovering in September.

"Strong demand from social housing and infrastructure investments have driven long product mills to run at near 100 percent utilization rates, and the bull-run may extend to the coming months," said Wang Dezhi, an analyst at Orient Futures in Shanghai.

GOING LONG, NOT FLAT

Based on China's June steel output of 59.9 million tonnes or nearly 2 million tonnes a day, production for 2011 could hit a record 729 million tonnes, up more than 16 percent from 2010.

China's pace pushed global steel production to a record daily rate of nearly 4.3 million tonnes last month.

In the period from January to June, Chinese output stood at 350.5 million tonnes, up 9.6 percent from a year ago, with apparent consumption of 334.2 million, up almost 9 percent on the year.