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China's record steel output in July shows summer lull never arrived

* Approved mills ramp up output as illegal operators shuttered

* Data may be more accurate as Beijing closes black market

* Steel prices have surged nearly 50 pct this year

BEIJING, Aug 14 (Reuters) - The typical summer lull across China's steel sector never arrived this year as mills have churned out record volumes in a rush to fill a supply gap caused by government-mandated closures and to cash in on high margins.

China typically sees a slowdown in steel output because construction demand slows as building activity drop during the high temperatures in summer. The country's output may rise higher as construction activity picks up in the autumn.

China's steel production last month rose 10.3 percent from a year ago to a record 74.02 million tonnes, eclipsing the previous record set in June of 73.23 million.

New capacity that complies with strict, new environmental standards are filling the supply lost as illegal steel producers, mainly induction furnaces, are being shut. Mills are also running at higher capacity to reap margins that are over 1,000 yuan ($149.90) a tonne.

Some steel analysts believe the record output is a result of the production from the environmentally compliant mills showing up in government data whereas the illegal induction furnaces did not.

"Following the closure (of illegal plants), official steel mills have had to ramp up production to fill the supply void, distorting the official production statistics," said analysts at Liberum in London.

That suggests output in China, which accounts for about half of global capacity, may have been higher than many analysts previously thought.

Some estimates put the shutdown of induction furnaces this year at 30 million to 50 million tonnes, about 4 percent to 7 percent of China's annual output.

"Driven by high margins and better-than-expected demand from infrastructure and the property market, mills have been working to fill the gap from the crackdown on low-tech steel production, which has meant the low season isn't that low," said Liu Xinwei, steel analyst at Sublime Information.

With the peak demand months of September and October approaching, Liu reckons production may be even higher over the coming months.

"I believe the output figure will outperform July and hit a new record high in August," he said.

Data highlighting the fast pace at which new government-approved supplies are coming on stream may fuel tensions with the United States and Europe, which have accused China of subsidising its domestic steel industry and exporting its excess capacity abroad.

Higher output could also threaten a months-long rally in rebar futures which have gained nearly 50 percent this year, peaking at 4,016 yuan ($603.15) a tonne last week.

The first cracks appeared on Monday when prices closed at 3,807 yuan a tonne, down 2.6 percent. ($1 = 6.6709 Chinese yuan renminbi) (Reporting by Josephine Mason; Editing by Christian Schmollinger)