Chinese steel prices followed the usual course losing another 1% during the week despite encouraging factory output. China's factory activity expanded at its fastest pace in 18 months in July, a preliminary HSBC survey showed on Thursday, suggesting that the country's mini stimulus measures were having a positive effect.

However both iron ore and finished steel market lost further owing to inherent weak fundamentals. In iron ore mills are now decreasing their inventories of iron ore there are more than 115 million tonnes at seaports and so nobody is worried about supply. Mills are reluctant to indulge in buying as they are well stocked.

The Chinese steel sector, the world's biggest, is struggling with severe overcapacity, a slowdown in demand growth, rising environmental compliance costs and a crackdown on easy credit, and caution continues to prevail in the sector.

The key issue for the sector is a weak property industry, which is responsible for well over half of China's total steel demand. The problem is that now demand for construction is falling- 80% of Chinese mills produce rebar and wire rod for construction.