By Ruby Lian and David Stanway
SHANGHAI (Reuters) - China's crude steel output hit a record high of 70.65 million tonnes in March, data showed on Friday, as a rally in steel prices and a seasonal pick-up in demand encouraged steel mills in the world's top producer to boost production.
Steel output rose 2.9 percent from a year ago, beating market expectations, although total output in the first quarter was down 3.2 percent at 192.01 million tonnes, according to data from the National Bureau of Statistics.
Mills increased production last month in response to restocking by steel users that has helped drive up domestic prices by 34 percent this year.
Some steel mills are making a profit of as much as 500-600 yuan ($77.11-$92.49) a tonne, but a slowing economy, credit shortages and China's target of cutting overcapacity in the sector is expected to hit momentum later this year.
"This is really surprising. Steel output will likely rise further in the second quarter due to improving demand, but we still expect full-year output to drop slightly from 2015 due to supply-side reforms and tight credit," said Yu Yang, an analyst at Shenyin & Wanguo Futures in Shanghai.
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China's economy grew 6.7 percent in the first quarter from a year earlier, its slowest pace in seven years, although other indicators show the slowdown in the world's second-largest economy may be bottoming out.
China accounts for about half of global steel production and it aims to cut between 100 million and 150 million tonnes of crude steel capacity in five years.
Crude steel production fell 2.3 percent to 803.8 million tonnes last year, the first annual drop since 1981.
Customs data on Wednesday showed China exported 9.98 million tonnes of steel products in March, up 30 percent from a year ago, as Chinese steel mills managed to ship more abroad despite rising anti-dumping measures against the country.
($1 = 6.4840 Chinese yuan renminbi)
(Editing by Ed Davies)