Bloomberg quoted the China Iron and Steel Association said steel production growth in China, the world’s largest maker may slow for the rest of the year as tightening credit could restrain building expenditure.

Mr Li Shijun the chief analyst with the association said “High levels of steel output can’t be sustainable if fixed asset investment slows down because of tightening bank loans. Slowdown in bank loans will affect every industry, both steelmakers and consumers. It will curb demand. In the H1 the monetary policy wasn’t moderately loose it was extremely loose.”

The statistics bureau said last month urban fixed asset investment for the seven months to 31 July climbed 32.9% in China. That less than the 33.6% gain through June and the 34% median estimate of 22 economists.

Mr Li said “Steel output would be annualized at 540 million tonnes for 2009 based on the average January to July production. China produced 500.5 million tonnes last year more than the combined output of Japan the US, Russia and India the next four biggest makers.”

He said that overcapacity is the dominant issue for China steel industry. He added that “Steel consumption in the H2 may be supported by non-government asset investments and property demand, offsetting any slowdown in government expenditure. Exports may recover also.”

Mr Li Cheng executive president of the stainless steel council of China Special Steel Enterprises Association said stainless steel output may exceed 7 million tonnes this year after reaching 4.06 million tonnes in the H1. China has the capacity to make 13 million tonnes of stainless steel a year or about one third of global capacity.

(Sourced from Bloomberg)