RECENT turmoil in the global economy has yet to touch China's still-booming steel sector, which looks set to produce a record 700 million tonnes this year, keeping iron ore prices near record highs with Australian miners major beneficiaries.

And the sector has been forecast to soar even further next year, producing as much as 850 million tonnes in 2012, as China's unprecedented industrialisation and urbanisation continues.

"Demand for iron ore remained strong with China's crude steel output barely missing a beat in the traditionally slow summer season," Singapore-based The Steel Index said in its monthly report. "After a brief dip in July, annualised output looked on track to have surpassed 700 million tonnes again in August."

Mu Wenxin, an analyst at consultancy Custeel.com, said the group also expected steel production to reach 700 million tonnes this year.

"We are forecasting that it will increases to 850 million in 2012. Given China is still a developing country, the economic growth will remain a certain pace," he said.

"In several industries, including real estate, railways and road, automobile and ship building -- all major consumers of steel, growth is still optimistic, hence supporting the demand for steel."

Mining profits are once again expected to be strong for the coming quarter, after prices edged up in August, with the monthly average of The Steel Index's 62 per cent Fe fines benchmark reference price rising 2.6 per cent to $US177.45 per tonne for the Chinese market.

The average over the June-August quarter was down just 0.6 per cent from March-May. Iron ore contracts for the quarter ahead are set on prices from the previous quarter. Price strength was helped by continuing tight supply from India, where a combination of monsoon rains and bans by various states on exporting iron ore saw lower shipments.

Apart from the pure growth figures, the Australian iron ore sector has received a boost recently from a downturn in Indian supply.

"Chinese import data for July released last month showed an almost 50 per cent drop in Indian volumes entering the country compared with June. However, the fall was offset by a large jump in Australian imports, which rose 16 per cent," The Steel Index said.

Still, high commodities pricing continues to dent the profitability of the Chinese steel sector, which the state-run China Iron and Steel Association now claims is less than 3 per cent.

"It's generally recognised that the Chinese steel industry is running at low profit margins -- 2 to 3 per cent in the last year -- even lower than bank interest, as a result of oversupply in production and disordered competition," Mr Mu said. "Except Baosteel (China's premier steelmaker), other mills' profit are far behind of that of Japan and South Korea."