China still fighting steel glut despite price surge: official

China still faces severe steel oversupply, and a recent price surge is only due to temporary market expectations, a senior official said on Thursday.

Steel prices increased significantly starting in March and declined mildly in May, as surging property sales pushed up steel demand, Zhao Chenxin, spokesperson with the National Development and Reform Commission (NDRC), the nation's economic planning agency, said at a press conference.

The price increase also followed resumed construction after winter leave and rebuilding of inventory by trading companies, Zhao said.

He said the government's de-stocking moves reduce steel supply, which partly explains the price surge.

"The price surge is mainly due to expectations of more policy tightening and other short-run factors. Severe steel glut has not been fundamentally reversed," he added.

Steel makers have been in deep water over the past few years as a result of shrinking demand and excessive capacity built up during decades of rapid expansion.

The country's steel mills were "in severe winter" last year as overcapacity and tumbling steel prices squeezed profit margins.

The government launched a nationwide campaign to reduce overcapacity and upgrade production as part of the country's efforts to battle economic headwinds.

Zhao said the price surge will only mildly disturb the de-stocking efforts, and the price increase will be short-lived. Endi