UPDATE 2-China iron ore output soars, steel at record

China's monthly iron ore output leapt by a quarter to the second highest ever in June as demand for steel strengthened and prices rose, while steel production hit an all-time peak, official data showed on Friday.

The 27 percent jump in iron ore output, to 83.3 million tonnes, will reassure local steel mills that are facing uncertainty over imports of iron ore because of the furore over allegations of spying levelled at Rio Tinto (RIO.AX) employees involved in China's annual price negotiations.

China was expected to settle iron ore prices with Rio and its Anglo-Australian rival BHP Billiton (BHP.AX) at the end of last month, but the two sides failed to strike a deal before the talks became subsumed in the spying row involving Rio.

With a revival in the international market, domestic production has rebounded.

"The trend is expected, as imported iron ore prices have been higher than domestically produced, encouraging local miners to resume production," said analyst Hu Kai at industry consultancy Umetal Research Institute. "Production will keep rising in July, as more mines are reopening."

A slump in prices early this year forced China's relatively high-cost iron ore mines to cede domestic market share to importers, who have shipped unprecedented amounts to China for the last three months.

Some analysts had estimated China closed nearly 20 percent of its ore mines this year.

But spot iron ore prices delivered in China have steadily risen to above $80 a tonne and some Indian ores are offered at around $90 a tonne, making them more expensive than Chinese spot material for the first time nearly in a year.

China, the world's largest iron ore buyer, consumes more than half of the world's traded ore. Its buying spread helped iron ore prices rebound strongly this year, reducing their negotiation leverage with global miners.

The National Bureau of Statistics, which published the figures, revised last June's iron ore production up, leaving the latest month showing a 1.6 percent fall in volumes.

China's crude steel output in June rose 6 percent on year to 49.42 million tonnes, and coal output jumped 15.9 percent on year to 279.09 million tonnes, both record high levels, according to the data from the National Bureau of Statistics.

June's steel production is equivalent to an annual output of more than 600 million tonnes, 20 percent higher than the country's 2008 production and way above previous government target of 460 million tonnes for 2009. link....