ASIA STEEL-China steel prices dip but demand still intact

* Prices decline slightly, but optimism remains

* Baosteel January hikes suggest demand still strong

* Traders await impact of new "restructuring" policies

By David Stanway

BEIJING, Dec 10 (Reuters) - Chinese steel prices fell around 4 percent this week, according to Metal Bulletin figures, but a sustained decline is unlikely, with demand continuing to hold through the winter months, analysts said.

The decision by China's biggest steel maker, Baosteel (600019.SS), to raise benchmark hot-rolled coil prices by 300 yuan ($43.94) per tonne in January, and cancel discounts of 200 yuan per tonne, also suggests demand is strong enough to sustain higher prices.

"Prices have exceeded expectations already," said John Johnson, chief executive of CRU China in Beijing.

"We were a little bearish early on, but we have almost got past that point now, and while we can't discount a little softness, we are optimistic there won't be a significant drop-off in demand," he said.

Metal Bulletin did not provide figures for Wednesday spot HRC prices, but said they fell again after ending Tuesday at 3,680-3,700 yuan, 4 percent lower than the previous week.

But there is little evidence to suggest the market has reached a "turning point" and a decline in prices could now be imminent. Industry consultancy Mysteel's composite steel price index barely flickered over the last seven days and ended Wednesday up 0.1 percent at 137.1 points.

Steel prices in four of the seven regions covered by Mysteel actually rose slightly compared to last week, with north, south and northwest China registering fractional declines, and its long product index also ended the week up 0.1 percent despite a winter lull in construction activities.

However, February rebar futures SRBc3 fell 3 percent compared to last week, ending Wednesday at 3,819 yuan.

GOVERNMENT INTERVENES

Traders, generally still optimistic, were wondering what impact China's new plans for the iron and steel industry would have on the market.

Despite government fears that production levels were unsustainable, monthly crude steel output stood at 49.37 million tonnes in November, according to preliminary figures from the China Iron and Steel Association -- down 4.6 percent month on month but still 40 percent higher than last year.

Mysteel said that daily output actually rose over the course of last month, reaching 1.67 million tonnes in the last ten days of November, up from 1.64 million in the middle 10 days.

Amid the global downturn, China's share of world steel output reached 48 percent in the first ten months, up from 37 percent last year, and the government has finally issued new measures aimed at curbing the sector.

In the past week, Beijing has ordered local governments to close 16.91 million tonnes of outdated capacity by the end of February, and also issued new draft guidelines ordering mills with less than 1 million tonnes of annual capacity to close.

Caijing magazine said as many as two thirds of China's steel enterprises do not comply with the new rulings, which also include stricter environmental and technological requirements.

"There is currently a bit of uncertainty, and we are looking at what impact these measures will have on market sentiment, but if they do end up in a fall in capacity, prices should have even more support," a Shanghai-based trader said. ($1=6.827 Yuan) ($1=6.827 Yuan) (Reporting by David Stanway, Editing by Clarence Fernandez)