With domestic steel prices rising since mid July, one industry group is predicting the trend will not continue since supply currently exceeds demand.

The China Iron and Steel Association made the comments in its monthly report Sunday.

The China Steel Price Index climbed to 116.56 points at the end of August, up 2.71 percent from the end of July and 7.74 percent year-on-year, the association said in the report.

Steel prices have a big influence on profit margins of the nation's manufacturing industry including the car, home appliance and electronics sectors.

Domestic steel prices have rebounded since the middle of July despite slight retreats in the last week of August and the first week of September.

The report attributed steel price hikes to low crude steel output, shrinking inventories and strong demand as dem-onstrated by urban fixed-asset investments and advancing industrial output of downstream sectors.

Daily crude steel production in China fell to 1.7 million tons in August, more than 100,000 tons lower than April and May.

In the country's 26 major steel markets, inventories of five key steel products at the end of August dropped to 14.9 million tons, down 40,000 tons or 0.3 percent from July.

Inventories plunged a further 240,000 tons last week, the association said in another report, expecting a year-end inventory of 11 million tons.

To help meet the nation's energy-saving's target, the government rolled out a series of measures this year to curb the high-polluting steel sector. The measures include scrapping tax rebates to exporters of key steel products, cutting production and restricting power use.

The association report stated daily crude steel output would not bounce back despite an uptick in demand.

"An obvious deviation (in high steel prices and low daily crude steel output) will exist for some time," said CISA.

Major producers including Baoshan Iron & Steel (Baosteel) Co Ltd, Wuhan Iron and Steel (Group) Corp and Shougang Group raised prices for October shipments.