Small Chinese steel mills cut production - analyst

SHANGHAI, Sept 15 - Some small-sized steel mills in the northern Chinese province of Hebei have cut output, partly due to lower steel prices, an analyst at Macquarie Bank said on Tuesday, citing local industry sources.

The move, expected to reduce China's crude steel production in September by 2-3 million tonnes from a record 52.33 million tonnes in August, is likely to be the start of a nationwide wave of cutbacks, Macquarie analyst Henry Liu said.

"The key factor is price," Liu told Reuters. "Major steel mills could join the production cut if domestic steel prices drop further, but so far spot prices are still higher than the production costs at big producers."

After hitting a 10-month high in early August, steel prices in Chinese physical markets have turned lower, bringing down spot iron ore prices and prompting steel mills to slash their offer prices for sales since then.

China is by far the world's biggest steel producing country and has ratcheted production up to record highs this year despite a collapse of export markets and the threat of oversupply in the domestic market, which has more production capacity than demand.

Hebei is one of China's top steel producing provinces and is home to hundreds of small mills. It almost encircles Beijing, supplying the capital's building sites and manufacturers and contributing to the fug of pollution that shrouds the city.

Angang Steel Co Ltd, a major steel maker in northern China, announced on Monday that it would cut October prices for its steel products by as much as 13 percent from September, the China Securities Journal said on Tuesday.