They said the price declines in the past few weeks had destroyed confidence in the Chinese sector, which saw crude steel output jump by about 25 percent in the first four months despite the government's measures to cool the sector's growth.

"Everybody is horrified," said a senior trader, adding that in May alone prices for hot-rolled coil fell 1,500 to 2,000 yuan (US$181.16 to US$241.55) per ton to below 4,000 yuan per ton. "They are trying to arrange iron ore shipments for later months. The situation is really bad," said a trader at a top Chinese trading company.

Reflecting the slowdown in Chinese iron ore imports, freight rates for iron ore from Brazil to China had slumped to about US$20 a ton from more than US$40 during the first quarter, shipping officials said.

Industry sources and traders said the sentiment in the mainland steel industry had changed completely from the first quarter as the government appeared determined to slow down the rapid expansion of the energy-intensive sector.