* Production shrinks in US, Europe, Turkey, Russia
* China produces almost half of the global supply
* Overcapacity persists but demand slightly better
LONDON, Jan 23 (Reuters) - Global steel production reached a record high in 2013, with growth speeding up as Asia put a foot an the accelerator and offset a contraction in Europe and the United States, boding well for a recovery in company earnings this year.
Steelmakers have been battling low steel prices and weaker demand in the past three years, but confidence in the sector, a major industrial indicator, has recently improved slightly, even while large overcapacity persists.
Global output of crude steel rose by 3.5 percent to more than 1.6 billion tonnes in 2013, data from the World Steel Association showed on Thursday. In 2012 by comparison, output grew 1.2 percent.
Most of the boost came from top producer China and other Asian steelmakers, while the West cut production, especially in the first part of the year, in response to low prices.
"Demand surprised on the upside, particularly from the Chinese property sector. Production reacted to that," Macquarie head of commodity research Colin Hamilton said.
"In the developed world after a weak first half, we saw a recovery towards the year-end. I still think is going to be steady rather than spectacular recovery, but it means that the world outside Asia should be a positive contributor to demand and production growth again."
Overcapacity of about 200 million tonnes of steel a year globally remains a serious issue for the industry and is likely to contain price increases for the near future.
Nonetheless analysts and market players seem to be slightly more upbeat about 2014 and say the worst may be over.
"While global oversupply remains an issue, putting downward pressure on finished steel prices, the stronger-than-expected recovery in the U.S., progress in the euro zone and subsequent stability in Chinese economic growth hints towards a recovery in investment spending, which will drive restocking in 2014," analyst Kashaan Kamal at Sucden said.
Asia as a whole posted 6 percent growth. China confirmed its dominance as the world's largest producer with a 7.5 percent jump in steel output to 779 million tonnes.
It increased its share of global supply to 48.5 percent in 2013 from 46.7 a year earlier.
"The increase in production is a positive sign as it signals a general recovery in the steel market. However, there is the downside risk that mills will ramp up production too much," said analyst Jeremy Platt at steel consultancy Meps.
Japan was the second-largest producer, posting 3.1 percent growth to 111 million tonnes in 2013, the first increase in three years.
A massive earthquake followed by a tsunami in 2011 heavily damaged the Japanese industry, depressing production and consumption of the alloy.
In 2013 though, a rise in construction and infrastructure fuelled domestic demand, while a weaker yen helped Japanese sales abroad.
In India, the world's fourth-largest producer, output rose 5.1 percent to 81.2 million tonnes in 2013.
Steel production shrank in the United States, Europe, Turkey and Russia as steelmakers tried to respond to weak steel prices and depressed demand by cutting some production.
They were also under pressure from aggressive Chinese exports.
ArcelorMittal, the world's largest steelmaker with about 45 percent of its sales in Europe, responded to weak demand by idling blast furnaces and permanently shutting some facilities such as those in Liege, Belgium.
The European Union posted 1.8 percent fall to 165 million tonnes.
Towards the year-end however, steel prices improved. Steelmakers have expressed more confidence, saying their order books had improved slightly.
"We expect EU apparent consumption to rise by around 3 percent in 2014 owing to higher levels of activity in the steel-using sectors and, as a consequence, strengthening real consumption and some restocking in the downstream supply chain. The EU steel market is seen gaining further strength in 2015," Gordon Moffat, president of regional steel association Eurofer, said in a statement.
U.S. output contracted by 2 percent to 87 million tonnes, but the market saw a noticeable price increase in the second half of the year due to improving demand.