By Chen Xiaomin

China's domestic steel market, suffering from oversupply, will see a series of reforms soon to address deep-rooted problems such as disorderly imports, according to a vice-chairman of the China Iron and Steel Association, which is currently leading the country's annual price negotiations with the world's top three iron ore miners.

Luo Bingsheng said Friday at the 2010 China Steel Industry Development Conference in Tangshan, Hebei Province that "we shouldn't be overly optimistic" on the domestic steel market this year.

Luo said that a proactive fiscal policy, moderately easy monetary policy and fixed-asset investment, though not as strong as in 2009, would continue to drive demand in China this year.

But oversupply, weak overseas markets and increasing costs will weigh down the do-mestic steel industry, Luo said.

In 2009, China's crude steel output grew 13.5 percent year-on-year to 567.84 million tons. Over the same period, the country's crude steel imports climbed 40.49 percent to 23.34 million tons, yet its exports declined 59.2 percent from a year earlier to 26.2 million tons.

Non-exported crude steel will have to be consumed domestically, which has worsened the domestic oversupply situation. Worse, the country's crude steel output is set to grow even faster, even as inventories swell.

Luo said a survey the association conducted in 20 major cities showed that inventories soared 95.93 percent to 9.27 million tons from December 2008 to this February.

However, output forecasts for 37 large and medium-sized steel mills showed China's overall crude steel output will be up 16.1 percent year-on-year in 2010, Luo said.

Chinese steel mills produced 128 million tons of crude steel in the first two months of this year, up 25.4 percent year-on-year.

Luo said increasing prices of coal, coke, electricity, water and iron ore, which could see surging prices this year, will squeeze steel mills' profit margins.

While average steel product prices dropped by 22 percent last year as a result of the global financial crisis, costs actually dipped by more than 28.46 percent.

The rate of cost decline had been narrowing since last July, Luo said, adding steel prices are struggling to keep pace with climbing costs, primarily because of oversupply.

Luo also said the government is drawing up a series of policies and measures centering around structural adjustment and the transformation of development models.

Policies and measures addressing disorderly iron ore imports will be unveiled very soon, Luo told a group of reporters on the sidelines of the conference.

Luo also said that China's regional supply and demand is unbalanced, adding modernized, large coastal steel mills with high-value products should be created.