On the back of China's slowing auto demand and tightened regulations on real estate investment, price hikes by the country's steelmakers have begun to ebb.

In a sign of change in its strategy of rapid price hikes, which started last fall, China's leading steelmaker Baoshan Iron & Steel announced earlier this month that it would cut its domestic steel product prices for delivery in May -- the first cut in about 10 months.

Slumping steel prices are a sign that domestic demand has started to decline. In China, a shift in policy has made small car tax breaks less attractive since January. New car sales have also started to slow, raising uncertainty about the prospect for steel demand.

The People's Bank of China, the country's central bank, is tightening monetary policy in an effort to prevent a housing bubble. The futures market has already started to factor in the central bank's policy change on speculation that it will put downward pressure on property prices in the second half of the year.

Prices of deformed bars, a raw material for reinforced concrete used in condominium construction, fell about 10% from the end of March to 3,500 yuan ($508) per ton in Shanghai.

Rising steel prices since last year prompted Chinese ironworks to produce steel in large amounts. The country produced 72 million tons of crude steel in March, marking record monthly production. With trading houses accumulating inventories, speculative demand also pushed up steel prices.

An official at Australian finance company Macquarie Group predicts that speculation about higher steel prices has faded and steelmakers have started digging into inventories.

Rizhao Steel and other Chinese steelmakers have again started exporting cheaply, dragging down prices in the region. Hot-rolled coil, which is used to make cars and home appliances, fell to around $440 per ton for Southeast Asian markets. For East Asian markets, prices are down 8% from March and at a five-month low of around $480 per ton.

Strong orders from automakers and little export capacity have prompted Japanese blast furnace makers to remain bullish about price hikes. The gap with Chinese steel prices is widening as hot-rolled coil prices for Southeast Asia have remained at around $550 per ton.

If Chinese companies continue dumping, "Japanese steelmakers will soon likely find it difficult to hike prices," said an analyst at a major brokerage.

That said, the decline in steel prices will not be as big as when they fell sharply through last spring, given that the Chinese government will have to formulate economic stimulus measures ahead of the Communist Party convention in the fall.

Yasumitsu Saeki, executive vice president of Nippon Steel & Sumitomo Metal, said sagging steel prices in China are only a temporary phenomenon due to inventory adjustment.

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