Shipping and steel officials and traders said the mills were desperate to reduce production costs as there was little hope for a strong rebound in domestic steel prices in China, because of overcapacity following explosive expansion in the sector.

``From big miners, they are trying to delay and they are trying to get small cargoes,'' said a senior official at a major Chinese shipping company.

``They are trying to press the shippers. Maybe they can force them to reduce prices for next year ... They are trying to get some cargoes from other places like India or the Black Sea or Mid-America.''

China, the world's top steel producer and consumer, imports huge quantities of iron ore from the world's top miners in Australia and Brazil, such as Rio Tinto, CVRD and BHP Billiton.

The surging demand from China, whose economy has been growing faster than 9 percent a year, helped the miners win a price rise of 71.5 percent for 2005 term contracts in February.

But since then big Chinese mills have deferred shipment of high-priced term cargoes from Australia and Brazil because Chinese steel prices began a free-fall in April due to overproduction and a slowdown in global demand.

This has also led to a slump in international ocean shipping rates to two-year lows, with freights for dry bulk cargoes, such as iron ore, coal or grains, now less than a half of the levels seen in April.

In Beijing, a leading industry official said Chinese iron ore imports would slow in the second half of this year because of high stocks and slower growth of steel production.

``Imports in the second half of the year will be below the first half's 130 million tonnes,'' said Luo Bingsheng, vice chairman of the China Iron and Steel Association.

``Growth of steel production in the second half will be lower than in the first half of the year,'' Luo told reporters. He declined to give any estimate but said more than 36 million tonnes of iron ore were stockpiled at ports.

The traders and officials said Chinese steel prices as well as spot iron ore prices had stabilized in the past 10 days.

Indian iron ore was now quoted at about US$63 (HK$491.40) a tonne in China, up from well below US$60, as some steel mills replenished stocks. Still, they saw little chance for a rebound in domestic steel prices, with Chinese output set for further rises despite Beijing's policy of curbing expansion and encouraging industry consolidation.

``The problem is steel production is bigger than demand,'' said a senior trader at a major Chinese trading house. ``The government does not want more exports ... If they export more, they would have trade difficulties with the United States or Europe.''

Luo from the China Iron and Steel Association said domestic steel prices would remain weak in the second half and that some steel products were now sold below cost.

Macquarie Research also said in its China commodities weekly: ``Overcapacity will become an increasing problem over the next year as mills use retained earnings to increase output despite a lack of profitability.

``Bankruptcies and consolidation will play out eventually, but this will need government encouragement as efficient private mills are not keen on being burdened with smaller inefficient assets.''

Official data showed crude steel output had risen to 164.86 million tonnes in the first half of this year, up 28.3 percent on a year earlier, while steel products output climbed 25.9 percent to 173.12 million tonnes.

``We have not really seen a slowdown in investment into the sector. It tells you that the market is still pouring money for building up capacity,'' said Geoffrey Cheng at Daiwa Institute of Research (HK).