CISA said daily output stood at an average of 1.92 million tonnes in the first 20 days of the month, up from 1.823 million tonnes in February and 1.703 million tonnes in January.

According to Reuters calculations, average daily steel output up to March 20 stands at 1.81 million tonnes, which would amount to 659.5 million tonnes on an annualised basis.

China produced 114 million tonnes of crude steel in the first two months of the year, according to official data, up 12.6 percent compared to the same period last year.

China's steel firms have been struggling with thinning margins and sluggish demand, buffeted by high raw material prices and a series of tightening measures by the central government.

But analysts said that mills have remained desperate to run at maximum capacity in order to hang on to market share and maintain their credit lines with local banks.

Steel prices on the Chinese market have declined around 6 percent since early February as a result of lower than expected end-user demand and oversupply.

While product stockpiles have started to decline slightly in the last two weeks, they remain around two-thirds higher than at the beginning of the year.

But as long as mills continue to break even, they have no incentive to reduce output, said Henry Liu, senior commodity analyst with Mirae Asset Securities in Hong Kong.

"If they start losing money they will start to cut production -- that will be the breaking point," he said.