CISA figures showed that at the end of September, steel inventories at 26 major Chinese cities rose 91 percent from a year earlier to 11.13 million tonnes. Stocks of 68 large and medium-sized iron and steel enterprises totalled 11.55 million tonnes, 14.26 percent more than that at the beginning of the year.

increasing stocks could spur further price decline, and lead to enterprises losses," said CISA on its website Tuesday.

Export of Chinese steel plunged by 68 percent to 15.7 million tonnes year on year in the first nine months. During the same period, the import went up 37 percent from a year earlier, the association said.

CISA forecast China's crude steel output was to increase by 10 percent in 2009 from the previous year. Taking weakening steel export into account, steel in supply would increase by 25 percent in 2009.

China's steel industry was facing "an undoubted fact of overcapacity" as the country accounted for almost 50 percent of the world's total crude steel output, CISA said on its website last month.

To solve the problem, CISA said China should step up efforts to strike a balance between supply and demand in the sector by promoting innovation and technological upgrading, eliminating overcapacity, enhancing sector consolidation and cutting crude steel production.