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LONDON (Scrap Monster): China's steel industry output continues to rise despite slowing economic growth, declining steel prices, and poor profitability at the steel mills, said Fitch Ratings, an International credit ratings agency.

Regarding the continuous increase in output, Fitch cited the larger steel mills' priority to maintain economies of scale and market share, while it added that smaller steel mills are taking advantage of the recent fall in raw material prices to ramp up production.

According to Fitch, the steel and raw material prices in China, including iron ore and coking coal, are unlikely to rebound in the short term.

Price weakness is expected to continue during the second half of the current year and through to end of the first quarter of 2013, due to weak seasonal demand typically associated with the winter period.

Fitch pointed out that downward pricing pressure on steel is being driven by the country's slower industrial production growth of less than 10% since April this year, compared with 13.9% in 2011. Demand from China's shipbuilding, machinery and heavy equipment sectors is especially weak, resulting in negative production growth for steel plates so far in 2012.

Since the decline in steel prices has a downward reflection in iron ore prices, some smaller steel mills with a production capacity of less than 2 million mt per year are encouraged to boost production, leading, however, to an oversupply situation in the context of weak demand, according to Fitch.