Several large steel mills are due to start operations in the second half of the year, sharply increasing crude steel supply, said Shan Shanghua, head of the China Iron and Steel Association.

China's demand for steel is expected to slow from the first half at the same time the country's economic growth is shrinking, Shan told his association's mid-year review meeting.

"Decreasing demand for crude steel and rising material costs in the second half of this year would adversely affect China's steel makers," Shan said, according to a statement posted on a website affiliated with the association.

Demand growth will fall to 13.7 percent in the second half from 14.5 percent in the first half, according to the association's estimates.

China's crude steel output will reach 535 million tonnes this year, up 9.4 percent from 2007.

China, the world's largest steel producer, became a net steel exporter in 2006, and a surge in its steel products has led to mounting complaints from the EU and other countries.

Beijing has been taking measures to scale back production, such as cutting export tax rebates and raising export tariffs on steel products last year.

Analysts argue Beijing's move to put the brakes on its steel sector has in turn prompted Chinese producers to boost production in a last-ditch effort to make a profit.

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