Profit margins of steelmakers in China may shrink as demand recovery falters and iron ore prices increase, a Mirae Asset Securities (HK) Ltd analyst said.

Reinforcement bar prices in the local market may remain at 3,700 yuan ($590) to 3,800 yuan per metric ton in the near future, while iron ore and coking coal prices will continue to rise, Mirae's Shirley Zhao said by phone from Hong Kong. The profit margin on the bars is now around 200 yuan a ton, compared with a loss last month, she said.

"Steel is lacking an upward momentum as there aren't any signs of a strong recovery and traders are still having difficulty borrowing money to expand stocks," Zhao said, citing discussions with the traders. "Iron ore prices may keep rising until they are unaffordable."

Spot prices of steel rebars, used in buildings, have risen 12 percent to 3,806 yuan since Sept 7, when China announced plans for higher infrastructure spending, according to the researcher Beijing Antaike Information Development Co.