LONDON – Global crude steel production hit another record monthly high in June with growth re-accelerating on the cusp of what should be a seasonally slower third quarter.

The world’s steel mills churned out metal at an annualised rate of 1,554 million tonnes in June, according to the latest figures from the World Steel Association. Moreover, the pace of global growth accelerated to 8.0 percent from 4.2 percent in May.

First-half figures showed higher year-on-year production in all regions with the single exception of Africa, where a 16.9-percent slide reflects the economic tailwinds following months of political turmoil across North Africa.

But the single biggest driver of global steel growth, particularly over the last couple of months, has been China. Not only did Chinese production hit another annualised record high of 729.0 million tonnes in June, but the annual growth rate accelerated further to 11.9 percent.

The latest figures from the China Iron and Steel Association (CISA), covering the first 10 days of July, showed only the mildest of moderations with annualised production still holding comfortably above the 700.0 million level.

The third quarter should in theory see global steel run-rates decline, a “normal” feature of the northern hemisphere summer.

Certainly, U.S. producers have just issued an appropriately downbeat series of earnings forecasts for the current quarter. But in Japan the earthquake and resulting disruption to supply chains have negated “normal” seasonality. The country is still in gradual recovery mode and Japanese producer Nippon Steel is forecasting higher prices and earnings for the current quarter.

In the case of China, meanwhile, seasonal demand weakness was expected to be overlaid by a general slowing of economic activity together with the potential impact on production of a summer power crunch.

CISA was warning as recently as May that steel producers would find themselves at the forefront of power rationing as an overloaded national grid struggled to meet energy demand.

But the summer power shortage has so far proved much less acute than feared thanks to rains re-invigorating China’s hydro systems and a loosening of the grid’s fee structure.

And that broader demand slowdown is proving remarkably elusive so far this year, judging by those early-July production figures from CISA.

Behind that elusive slowdown is the evolution of a two-tier market within China. Flat products output does seem to be sliding in line with both the usual summer doldrums and the broader deceleration in manufacturing activity, as evidenced by the dip into negative territory of the HSBC flash purchasing managers index.

However, the slack is largely being taken up by the long products side, reflecting still strong demand from the construction and infrastructure sectors.

Beijing’s investment programme in social housing is a key, non-seasonal driver. The target is to build 10 million low-cost housing units this year with the bulk of the actual construction biased towards the second six months.

Together with continuing broader infrastructure spend, this has boosted demand and margins for long products, particularly rebar, incentivising small producers to maintain high run rates into July.

The scale of any slowdown in Chinese steel production over the coming period will depend on the interplay between these two divergent trends.

But right now it looks as if it is going to be shallower than might have been expected even a couple of months ago.

The point was underlined by ArcelorMittal, reporting its Q2 financials this morning. The world’s largest steelmaker cited stronger-than-expected Chinese demand and a resulting milder-than-expected Q3 slowdown as key factors underpinning its expected earnings in the second half of this year.

All of which is very good news for the world’s big iron ore producers, assuming of course that they can dig and ship enough of the stuff to meet China’s still-exuberant demand.

While Chinese steel production rose by 11.9 percent in the first half of this year, imports of iron ore rose by just 8.2 percent.

Rather than Chinese buyers reducing purchases in the face of high prices, this was more a case of supply-side hits limiting exports from key origin countries.

Researchers at Macquarie Bank estimate that global volumes of seaborne iron ore contracted by 1.5 percent in the first half of this year relative to the prior six months.

Rains and flooding hit production in both Australia and Brazil in the first quarter, while the ban on iron ore exports from the state of Karnataka in India has disrupted flows of material from what was China’s third largest supplier last year.

Technically that ban was lifted in April when the Indian Supreme Court overturned Karnataka’s original ruling but a continuing stand-off between state and federal government means that it is to all extents and purposes still in effect.

China’s ore imports from India slumped by 23 percent in the first half of this year. Imports from the country’s top supplier, Australia, rose by just 4.4 percent over the same period.

Imports from Brazil fared better but with the inference that the South American country’s exports to the rest of the world have fallen accordingly.

China has diversified its iron ore supply to the benefit of second-tier producers such as Russia and Canada. Imports from the former more than tripled to 7.0 million tonnes, while those from the latter surged more than four-fold to 5.7 million tonnes in the first half of 2011.

But tightness in the seaborne market has forced China to turn inwards. National iron ore production jumped by 22.0 percent year-on-year in January-June as smaller operators capitalised on strong prices.

These are thought to be some of the highest-cost producers in the world, supplying what Macquarie has dubbed “the ore of last resort.”

Their mass activation and collective positioning towards the top end of the cost curve places a floor underneath the current iron ore price. That floor will remain in place as long as Chinese steel mills require this “last resort” ore.

Given the current strength of production in the country, that could be for a good while yet.

Andy Home is a Reuters columnist. The opinions expressed are his own.