Some Chinese steel firms eye output cuts-Xinhua

BEIJING, Oct 4 (Reuters) - Four large Chinese steel firms have been in talks to reduce their crude steel output by a total 20 percent, or up to 20 million tonnes, in a bid to cut ore imports and support prices, the official Xinhua agency said late on Friday.

Company officials, who met in the steel producing town of Handan, also discussed "improving the flow of information at a high level", Xinhua said in a report posted on its website, without quoting a source.

Senior officials from Shougang Steel in Beijing, Angang Steel and two newly formed groups -- Shandong Iron and Steel, and Hebei Iron and Steel -- decided that cuts would be based on current capacity, the report said. It did not give a time frame for the cuts to take effect.

All four steel mills are state-owned firms in northern China. Angang already sources most of its iron ore domestically, while the Shandong and Hebei groups are in the process of forming in mergers directed by the central government.

Cuts would help the firms control the rhythm of raw material purchases, the rate of consumption of stockpiles and encourage raw material prices to return to a rational level.

It would also avoid disordered competition between different regions and markets, and relieve pressure on world iron ore markets, the report said.

The firms have a total capacity of around 100 million tonnes at present, or about one-fifth of China's estimated production this year. The cutbacks would make a dent of around 34 million tonnes in the amount of iron ore China uses, Xinhua estimated.

But it will also create tighter conditions, particularly in the North China market where they make most of their sales.

Angang Steel (0347.HK) (000898.SZ), one of China's top three steel producers, expects growth in domestic demand to slow in the second half and production costs to rise faster than steel prices.

China's steel consumption rose about 16.3 percent in the first six months of 2008 but is expected to ease in the second half, an Angang director, Fu Jihui, said. (Reporting by Emma Graham-Harrison; Editing by Lucy Hornby)