However, a government plan to build 10 million affordable homes this year and an "investment boom" in hydro, rail and urban subway projects will keep demand growth steady, the industry group said.

Though the market is weak ahead of the Lunar New Year holiday, which starts on February 2, demand is expected to recover and prices will trend higher after that, the group said.

Higher costs of raw materials like iron ore and coking coal are also pushing up steel prices. Swiss bank UBS last week estimated benchmark hot-rolled steel coil prices will rise at least 8 percent this year in China.

But exports could face tough times, the association said, citing slower global economic growth and the appreciating Chinese currency.

Also, the government plan to reduce export tax rebates for certain polluting and energy-intensive industries, including steel, may also take a toll on exporters.

"This won't be conducive to balancing supply and demand," the association said.

The steel market remains oversupplied in China. Inventories at 26 major Chinese steel markets rose 1.4 percent to 13.24 million tons at the end of December from a month earlier. It was the first rise in seven months and 7.4 percent higher than a year earlier, the association said.

Crude steel output rose 2.6 percent to 51.5 million tons in December from the previous month, the National Bureau of Statistics said last week.