*Prices rise as construction resumes in second quarter
* Concerns remain amid real estate bubble fears
BEIJING, April 16 (Reuters) - Chinese steel prices rose slightly this week as traders rushed to meet orders, but analysts remain sceptical about the possibility of a surge in prices beyond the busy second quarter.
According to industry consultancy Mysteel, average construction steel prices in Shanghai stood at 4,270-4,290 yuan ($625.5) per tonne on Friday, up 1.2 percent from last week but down from a high of 4,330 yuan earlier in the week.
Construction steel prices have now risen by around 18 percent since the beginning of March, according to Mysteel data, but John Johnson, chief executive of CRU China, said further big increases were unlikely despite surging costs.
"Prices may rise again in the second quarter, but they will struggle to rise further in the second half of the year -- the costs will support price increases but the margins of steel mills will be squeezed," he said at a Coaltrans conference in Beijing.
Small steel producers at a conference in Qingdao last week said many in the industry were hoping that a timely revaluation of the Chinese yuan would help ease pressure on China's steel mills by reducing their costs, but it could also derail the fragile export recovery, with mills already facing stiff competition from steelmakers in other emerging markets.
"(Yuan revaluation) is both good and bad for the steel industry -- but I think many aren't actually focusing on the export market this year given the strength of domestic demand," said a trader based in east China's Jiangsu province.
Three-month rebar contracts on the Shanghai Futures Exchange SRBc3 reached 4,563 yuan per tonne by the end of trade on Thursday, up 1.8 percent compared with last week.
WHITHER DEMAND?
Data from China's National Bureau of Statistics showed a 22.5 percent rise in total crude steel output in March. A total of 158 million tonnes was produced over the first quarter as a whole, with demand from sectors like automobiles and white goods strong enough to offset a seasonal decline in construction activity.
The China Iron and Steel Association (CISA) has predicted that demand for steel would rise by more than 9 percent in 2010, putting total output at 620 million tonnes, with demand from the construction and real estate sectors likely to soar 8 percent to 285 million tonnes even in the face of cooling measures.
China on Thursday raised mortgage rates and down payment requirements in an effort to cool the red-hot property market. [ID:nTOE63E08N]
Johnson of CRU said that the dependence of the steel sector on construction activity is "frightening the markets".
"The rise in construction activity has caused some concern about what will happen if construction fails," he said.
While he said tightening measures are unlikely to have a catastrophic impact on the steel sector, they could cut consumption growth to about 5 percent by the third quarter.
He said the biggest short-term concern was soaring stockpiles of rebar and hot-rolled coil -- which reached a record of around two months of consumption in March.
Amid thriving demand and punishing iron ore cost increases, many domestic analysts still suggest that prices aren't rising half as fast as they ought, and like CISA, they blame bulging stockpiles and severe overcapacity.
But Jim Jia, analyst with Mysteel, said at the Qingdao conference that prices continued to rise over the first three months even while stockpiles reached record levels -- suggesting that traders at least remained confident about the market's vitality. ($1=6.826 yuan) (Reporting by David Stanway, Editing by Michael Urquhart)