UPDATE 2-China's steel output hits record high, inventories rise

* Daily crude steel output at 2.2 mln T in February

* But steel stocks also at record high, suggesting weak demand

* Property curbs dent outlook for China steel demand

(Recasts, adds comments on property curbs)

SHANGHAI/SINGAPORE, March 12 (Reuters) - China's daily steel output surged to a record in February as big mills ramped up production, but rising inventories and concerns over Beijing's latest property curbs have raised doubts about the strength of demand.

China produced 2.208 million tonnes of crude steel a day on average last month, well above the previous record of 2.05 million tonnes set in January, data from the National Bureau of Statistics showed on Tuesday. Output for the first two months of 2013 jumped 10.6 percent from a year ago.

The country is the world's biggest consumer and producer of steel. Demand typically improves in China from March as manufacturing and construction activities pick up after the Lunar New Year break and a winter lull.

Steelmakers have been gearing up for a strong year as the Chinese economy mends and after production rose only about 3 percent in 2012, well below the average growth rate of about 10 percent between 2009-2011.

Property restrictions announced on March 1, however, led some analysts to revise down demand growth projections for 2013, and inventories of steel products are rising.

"Generally, big steelmakers have received strong orderbooks, and as far as I know, their contracts are also high for March, while smaller mills are curbing output as demand from construction is recovering slowly," said Hu Yanping, an analyst with industry consultancy Custeel.com.

Large steel mills mainly produce flat products that are used for manufacturing, auto and house appliances. Smaller mills make long products, such as reinforcing bar, or rebar, mainly used for construction.

Shanghai steel rebar futures fell the most in 16 months last week on the property curbs, which include stricter enforcement of a 20 percent capital gains tax on existing home sales, while iron ore prices <.IO62-CNI=SI> hit six-week lows.

Both have since drifted further down to their weakest levels since December.

INVENTORIES RISE

Stockpiles of steel products at large steel mills hit a record of 12.97 million tonnes by mid-February, up 4 percent from a year ago, and were only slightly lower at 12.65 million tonnes at the end of February, data from the China Iron and Steel Association, or CISA, showed.

Inventory of steel products held by traders in China also reached a record 22.3 million tonnes as of March 8, with long steel products accounting for about 14.1 million tonnes, according to industry consultancy Mysteel.com.

"Although the inventory surge was due mainly to restocking ahead of holidays in anticipation of peak season demand from March ... the market has been worrying if demand will be able to rebound," Helen Lau at UOB-Kay Hian in Hong Kong said in a note.

The property curbs could lead to some destocking in the near term, said Graeme Train, commodity analyst with Macquarie in Shanghai

"Construction steel inventory looks high and this side of the market really needed to perform over the second quarter to push up steel and raw material prices," he said.

High stockpiles and the lack of robust order books have forced several small mills to consider cutting output, said an executive with a mid-sized steel mill in Hebei.

"Many mid-sized steel mills are currently making a loss of 200-300 yuan ($32-$48) per tonne, and order books haven't picked up strongly enough yet. I certainly expect a round of price gains from the second quarter but overall steel demand would not be much better from last year," she said.

Baoshan Iron & Steel, which mostly makes flat products, has said it will raise prices for a fifth month in a row in April. But producers of long products such as Jiangsu Shagang Group have cut prices by 100-250 yuan ($16-$40) per tonne, according to Steel Index.

Construction accounts for about half of China's steel consumption - 30 percent for residential and commercial property and 20 percent for infrastructure. Manufacturing, automaking, shipbuilding and home appliances make up the rest.

UOB-Kay Hian's Lau said she now sees flat steel demand from real estate from a previous forecast of 3 percent growth.

In a worst case scenario, if property sector demand for steel falls as much as 10 percent, China's total steel consumption may only reach 679 million tonnes, down from 685 million tonnes in 2012, said Lau.

That would be the first fall in China's steel consumption in 18 years, based on data compiled by Macquarie. ($1 = 6.2181 Chinese yuan)

(Editing by Himani Sarkar and Richard Pullin)