China's biggest steelmaker, Baosteel, is preparing to raise prices by 15 per cent next month, its third rise in as many months, and one which is being matched by other mills.

This will have the effect of keeping iron ore prices high, weakening the push by China's Iron & Steel Association for steeper cuts than the 33 per cent offered during long-protracted negotiations with Rio Tinto and BHP Billiton.

News of the surge in steel prices came yesterday as a raft of economic data for July showed further signs the Chinese economy is continuing to improve on the back of the government's epic stimulus program, although once again the figures were lumpy: some better than expected and some worse.

Analysts expect Baosteel to push prices up 15 per cent next month following higher-than-expected rises across the sector during this month as the sector continues to benefit from the government infrastructure-focused 4 billion yuan ($700million) economic stimulus package.

Surging car sales, helped along by government subsidies, is making China the world's biggest maker and buyer of cars, boosting the steel market.

Steel prices are now close to 2007 highs, while gross domestic product growth and inflation are much lower.

But analysts now believe that prices have peaked. This has raised fears of a steel price bubble and product stockpile, according to analysts Mysteel.

Fixed asset investment -- the main beneficiary of the stimulus -- is still increasing but stabilising at 32 per cent, underpinning demand for steel.

Deflation continues to roll on and was worse than expected at 1.7 per cent in July, indicating that consumer demand has not picked up as much as expected, although retail sales are slightly up at 15.2 per cent against 15 per cent a month earlier.

Industrial production was up 10 per cent -- lower than expected, signalling growing confidence but a more "normal looking" recovery.

China's July data suggests that third-quarter gross domestic product growth will moderate from its explosive second-quarter quarterly pace, as the earlier impetus from restocking and fixed investment faded, Royal Bank of Scotland China economist Ben Simpfendorfer said.

Body: "The restocking story is most important. China's out-performance in the first half, versus the rest of the world, was partly a result of its faster inventory build. But this boost may be fading," he said.

Exports, although down 23 per cent, are expected to starting growing more in the second half after a calamitous fall over the past nine months.

"The provincial trade bureau of Guangdong province, home to many of China's export manufacturers, recently announced that exports from the region were showing signs of recovery," JPMorgan china equities chief Jong Ulrich said.

"While provincial officials expect year-on-year declines in the third quarter of 2009, they expect to see export growth in the fourth quarter."

China's government also appears to be doing a good job pouring cold water on bank lending, warning banks to cut loans by as much as 70 per cent to soften any asset, property and stockmarket bubbles.

New loans in July declined to 355.9 billion yuan from 1.53trillion yuan but are still up 173 per cent on last year.