China's steel industry faces risks from a change in the interest rate and the government's other measures to tighten the country's monetary policy this year, UBS Securities said yesterday.

A rise in the interest rate may largely depress demand for steel while tighter policies could lead to a downward spiral in price, Tang Xiaobo from UBS Securities wrote.

Most of the demand is likely to come from the manufacturing industry in 2010 due to the pickup in industrial activities, compared with robust demand for long steel products heavily geared toward infrastructure construction in 2009.

Tang said overall, China's demand for steel this year will be back to normal after the country exits from its stimulus package,this will benefit major steel mills which mainly produce steel plates used for manufacturing.

Tang said. "And the growth in demand for steel plates will be stronger and sustainable."Large steel producers could also be helped by the possible rise of the yuan as they buy iron ore from overseas on contract basis, Tang added.

Media reports said Australian and Brazilian iron ore giants were asking for a price rise of as much as 50 percent while China expects a 20 to 30 percent rise.