UPDATE 2-China steel production steady at 47.66 mln T in Dec

* Dec crude steel output steady despite winter slowdown

* 2009 annual output up 13 percent

* Overcapacity concerns remain with stockpiles up (Adds background, analyst and trader quotes)

By David Stanway

BEIJING, Jan 21 (Reuters) - China produced 47.66 million tonnes of crude steel in December, up slightly from November and bringing the annual total to a record of 566 million tonnes, the National Bureau of Statistics said on Thursday.

The December output figure was 26.1 percent higher than the same period of last year, when the sector was still destocking as a result of the global financial crisis.

"November and December output fell compared to October because of scheduled overhauls by Chinese steel companies, but the overall situation is healthy and orders haven't significantly fallen," said Helen Lau, an analyst with OSK Securities in Hong Kong.

Total 2009 output rose 13 percent despite a collapse in China's export markets, but although domestic demand has surged as a result of a construction boom and record automobile sales, concerns about overcapacity in the sector remain.

STOCKPILING

Demand normally falls slightly in December as construction activities slow down, but mills and traders are believed to have been building up their inventories in anticipation of a rise in prices over 2010.

Stockpiles in major cities had risen to 12 million tonnes by January 14, according to industry consultancy Mysteel, 7.6 percent higher than at the end of December and up 100.8 percent from last year, but OSK's Lau said concerns about oversupply have been overstated.

"Even though traders have inventories that are higher than historical levels, it hasn't dented the rising trend in steel prices, so I am not too worried," she said.

Qi Xiangdong, the vice-secretary general of the China Iron and Steel Association, said last month that stockpile increases were not necessarily a sign of big troubles to come, noting they had risen from a very low level following a period of panic destocking at the end of 2008.

A senior Chinese industry analyst who did not want to be named said inventories were not necessarily that high, taking into consideration the sheer size of demand from the Chinese market.

"China's stockpiles are cyclical and are sometimes too high and sometimes too low, but I think it is an exaggeration to say that the current level is going to hurt profitability, given the size of the Chinese market," he said.

"The Chinese steel market can actually tolerate rising stockpiles and rising prices at the same time."

Steel product output in December reached 64.64 million tonnes, up 2.7 percent compared to the previous month. (Reporting by David Stanway, Editing by Clarence Fernandez)