Despite declining prices, Chinese steel mills have increasedproduction, prompting concerns that industry prices will crash.Though Nomura analysts forecast a 5% decline in output, Chinesesteel production increased 1.1% in early August. Citigroup alreadyforecasted that the industry would see losses in every quarter thisyear. Others warn that mills are encouraged to overproduce anddon't respond to price signals.

The statistics was extreme enough to prompt questions aboutwhether the China Iron & Steel Association, which compiles thenumbers, made an error. Nomura suggested the group may not havefactored in smaller mills that have already decreased production.Yet it is also possible Chinese steel mills are refusing to adaptto softening demand.

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