China's steel sector is set to struggle further after prices for major products fell to the lowest level in two years, the national steel industry group said yesterday.

Demand from downstream industries, such as property and infrastructure construction, hasn't bottomed out yet, but steel production is rebounding, the China Iron and Steel Association said.

Major steel companies including Baoshan Iron and Steel Co slashed August prices earlier this month, adding pressure on the spot market and dragging prices for major products to the lowest level in two years, the association said.

Shanghai's main steel rebar futures fell 4.85 percent last week to 3,750 yuan (US$587) a ton. GF Futures analyst Xia Caijun said the contract may decline to 3,500 yuan as confidence among investors remains weak.

China's economy grew 7.6 percent in the second quarter, the slowest pace in three years.

The steel group also ruled out a large-scale stimulus program from the government, though it said liquidity appeared to be improving.

"The domestic steel market will keep dipping as the fundamentals are hard to change," it said.

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