LAUNCESTON, Australia, July 17 (Reuters) - China's industrial output and commodity import data for June has thrown up contrasting numbers that add to the challenge of getting an accurate reading on the state of the world's second-biggest economy.

Steel production and iron ore imports appear to tell contrasting stories, with steel weakening in June but imports of the key raw material surging to the highest this year.

Coal output has increased by 5% in the first six months of the year compared to the same period in 2024, but thermal power generation, which is mainly coal-fired, dropped 2.4% in the first half.

Aluminium output rose 3.4% in June from a year earlier and by 3.3% in the first half, but construction materials such as cement and glass both dropped by 5% in June.

Part of decoding the seemingly mixed signals from the data is working out whether the numbers are part of longer-term trends, or driven by short-term factors.

China's crude steel output fell 3.9% in June from May and by 9.2% from the same month in 2024, which was the largest year-on-year drop since August.

The world's largest steel producer manufactured 83.18 million metric tons of crude steel last month, which took first half output to 514.83 million tons, a decline of 3% from the same period last year.

Softer steel output fits with the narrative of a still struggling residential construction sector, but it doesn't explain why iron ore imports have been robust.

China, which buys about 75% of global seaborne iron ore, saw arrivals jump by 8% in June from May, with imports of 105.95 million tons, the strongest month so far in 2025.

However, iron ore imports are down by 3% in the first half of 2025 to 592.21 million tons.

Prices explain some of the recent strength in iron ore imports, with Singapore Exchange contracts showing a declining trend since reaching the highest so far in 2025 of $107.81 a ton on February 12.

They dropped as low as $93.35 on July 1, but have since recovered to end at $97.95 on Wednesday amid optimism that Beijing's stimulus measures will boost second-half steel demand.

However, if annual steel output is to remain around the informal 1 billion tons cap, this implies that second-half production will be weaker than the first half's 514.83 million tons.

There is still scope to build iron ore inventories, with port stockpiles monitored by consultants SteelHome dropping to 131.9 million tons in the week to July 11, down from 150.02 million in the same week last year.

COAL MINING

Another seeming contradiction is coal production, which rose 5% in the first six months of 2025 to 2.4 billion tons.

The main use for China's domestic coal is power generation, and thermal power, which is overwhelmingly coal-fired with only a small amount of natural gas, dropped by 2.4%.

Total power generation rose 0.8% in the first half, and given that hydropower also dropped by 2.9% it's clear that the rapid deployment of renewables such as wind and solar increased their share.

Why would China want to produce record volumes of coal at a time when consumption is falling?

There are two main reasons, the first being that it ensures that domestic coal prices remain relatively low, which keeps downward pressure on electricity costs at a time when major power users such as manufacturers are facing uncertainty from the trade war with the United States.

The price of thermal coal at Qinhuangdao dropped to a four-year low of 610 yuan ($84.96) in June and while it recovered to 625 yuan on Wednesday, it is still down almost 20% from its 2025 high of 775 yuan in early January.

The second benefit from higher domestic coal output is that it cuts the needs for supplies from overseas, and because China is the world's largest importer this means that seaborne prices have been under pressure.