Steel prices in the Chinese domestic market will continue rising in the near term thanks to recovering demand and rising raw materials costs, the China Iron & Steel Association (CISA) said on Friday.

CISA said it expected a gradual pick-up in demand at home and abroad, with costs of raw materials such as iron ore, coke and scrap likely to keep surging, pushing steel prices upwards.

"This year is the opener of the 12th five-year plan, so steel demand will remain strong as economic growth is expected to remain healthy," CISA said in its monthly report.

Major steel-consuming sectors such as construction, machinery, transportation, home appliances and shipbuilding would continue to grow, lifting steel demand, it added, noting that infrastructure projects would also contribute to rising demand.

The Ministry of Industry and Information Technology forecast earlier this week that China's crude steel output would hit a record 660 million tonnes this year, with downstream demand providing a boost.

However, CISA also warned that non-steel mill steel product inventories had risen sharply, and domestic steel production was also on the rise.

CISA data showed that China produced 1.7033 million tonnes of crude steel on a daily basis in January, up 2.5 percent from December.

Non-steel mill inventories of five major steel products in 26 big cities rose 11.2 percent to 14.72 million tonnes in January from the previous month, especially for rebar and wire rod used in the construction sector.

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