Pakistan Daily Times reported that a rebound in Chinese steel prices in the typically weak consumption month of July has sparked recovery hopes for the sector after a difficult first-half, but slowing economic growth makes it unlikely the gains will be sustained for long.

Traders said that restocking by end users has sparked the revival and could carry on for some more time, boosting prices further. That should support prices of raw material iron ore, which have already surged by nearly a fifth to more than USD 130 a tonne since hitting seven-month lows at the end of May.

Global miners Vale, Rio Tinto and BHP Billiton about to embark on big expansion plans, have been watching for signs of a recovery in China’s steel sector, the world’s biggest and the buyer of two-thirds of global seaborne iron ore.

Traders said that leading Chinese steel mills such as Wuhan Steel and Jiangsu Shagang have raised prices for July and August bookings due to increased orders from domestic and overseas buyers, with some producers holding back export offers or delaying domestic deliveries.

A sales executive with a steel trading firm in Shanghai said that “Our sales have increased greatly in recent weeks and it is very likely that prices will maintain an upward trend in the near term as orders from downstream users still look strong.”

Traders said that China’s steel consumption is usually weak in July and August as construction activity slows during summer. But some traders and end-users are restocking after running down their inventories in the first half and in anticipation of the peak demand season from September.

Despite a slow start to the year, steel inventories in China have fallen from this year’s peaks, suggesting a pickup in end-user demand, although some cash-strapped traders have also been reluctant to maintain high stockpiles.

Data from industry website Mysteel showed that inventories among Chinese traders of five main steel products, including rebar and hot-rolled coil, have dropped by 28% over 17 consecutive weeks to 16.15 million tonnes by mid July.

Mr Du Hui an analyst with Qilu Securities in Shanghai said that “The rapid fall in steel inventories suggests that any more restocking by users could push prices up further in August given that output remains stable.”