Jan. 18 (Bloomberg) -- China's lending curbs may slow demand growth for steel from ongoing infrastructure and property projects in the world's largest consumer of the metal, an analyst at UBS AG said.
Restocking last year will also curb output with prices falling in the second half, said Hubert Tang, a Shanghai-based UBS AG analyst. Output may gain to 590 million metric tons, from 565 million tons last year, he said. That's less than an estimate provided to UBS by Baoshan Iron & Steel Co. of a 5 percent to 10 percent increase, or gains to 600 million tons to about 630 million tons, Tang said.
Steel production in China rose an estimated 13 percent to 565 million tons in 2009, the Ministry of Industry and Information Technology has said. The People's Bank of China last week raised the proportion of deposits that banks must set aside as reserves by 50 basis points starting Jan. 18, increasing the likelihood of higher interest rates.
"Loose credit in the fourth quarter of last year created a lot ‘front-loaded' demand for steel," Tang said. Steel prices will be dependent on the "timing and scope of the government's tightening measures."
China's steel output may exceed 600 million tons in 2010, after reaching a record 570 million tons last year, the China securities Journal reported Dec. 17, citing Ma Guoqiang, general manager of Baoshan Steel.
"The estimates of output gains by 5 percent to 10 percent are examples we used to analyze the market. It is not our official forecast," said Yu Hong, an investor relations executive with Baoshan, China's largest steel producer.
China's $586 billion stimulus spending has boosted steel demand from automakers, home-appliance manufacturers and builders. The spending helped the steelmaking industry return to profit in May after seven straight months of losses because of the global economic crisis.
Chinese steel prices have surged 18 percent since Oct. 15, a low in 2009, to 3,913 yuan a ton, according to the Beijing Antaike Information Development Co.
Average hot-rolled coil prices may rise a further 10 percent this year from 2009 because of higher raw-material costs, Tang said.