A hunger for steel in China and other emerging markets is set to increase demand in 2011-2012, the OECD said yesterday but rising prices could choke this trend.

The Organisation for Economic Cooperation and Development also noted that the industry faced challenges over the supply of raw materials, and in coping with pollution.

Urbanisation and construction booms in emerging economies would raise demand by six percent this year and again next year, the OECD said in a report.

The rebound of steel demand from the global downturn three years ago was faster than expected.

But that “trend could be called into question” if steel prices continued to rise, the report said.

Another risk was a potential shortage of raw materials for steel producers.

“Governments and industry will have to explore policy means to ensure secure, predictable and accessible supply” for producers, it added.

Construction and manufacturing activities in China had surged to keep pace with growth of the Chinese economy, the second-biggest in the world, the report said, noting particularly demand for steel for the construction and auto sectors. Production of steel in Japan, the world’s biggest steel exporter, was close to returning to levels before the March 11 earthquake and tsunami, the report said.

“Overall, the impact on the Japanese industry is considered to be smaller than originally feared,” the OECD said.

“Over the longer term, reconstruction work is expected to generate additional demand for steel and thus accelerate the economic growth rate of Japan.”

The OECD report also called on governments rapidly to take up new technologies to reduce emissions in the steel industry, a big producer of carbon dioxide.

“Expected economic development during the 21st century will require ever growing amounts of steel. Reducing emissions from steel manufacturing to levels consistent with a low-carbon economy cannot be accomplished with today’s technology.”