Many loss-making Chinese steel mills could finally be ready to shut their doors this year, with the government expected to offer more incentives for stricken enterprises to close as the economy slows and a war on smog intensifies.

For years, hundreds of poorly-regulated mills dodged policies aimed at solving the perennial problems of pollution and overcapacity, protected by surging demand and the reluctance of local authorities to jeopardise growth and employment.

But tougher environmental enforcement and a slowdown in demand have now mired the sector in losses, leaving firms struggling to pay wages or upgrade technology. The head of a state-owned mill said this month that 2015 could end up being the sector's worst year yet.

From last year, regulators promised to give the market a bigger say in deciding which mills would close, but many have clung on longer than expected in the hope that rivals perish first, propped up by local authorities terrified by the prospect of unemployment and unrest.

With excess capacity now said to stand at about 300 million tonnes and prices drifting near 20-year lows, the industry is waiting for Beijing to step in again with decisive measures aimed to close failing steel firms for good. "The central government may have to find a way to deal with it, but eventually the bottom line is they have to close down those steel mills," said Helen Lau, analyst at Argonaut Securities in Hong Kong.

Fears of a widespread shutdown of Chinese mills that could cut the country's demand for iron ore sent prices of the raw material last week to the lowest since records began in 2008.

Under a revised restructuring plan, the government will improve "exit mechanisms" for the sector, allowing enterprises already facing losses to find a way out, according to a draft published by the Ministry of Industry and Information Technology.