Chinese steel prices fell to their lowest level in more than eight years in mid-March as a result of weak demand and a surge in output, the country's steel association said in its monthly market report on Tuesday.

The China Iron and Steel Association (CISA) said that by the second week of March, its China steel price index had fallen to its lowest point since February 2006.

It said output had risen more quickly than expected in February, leading to a glut on the market that has eaten away at the prices of most major products.

"With steel demand increasing more slowly and steel production maintaining a relatively rapid rate of growth, the demand and supply imbalance is getting worse, which isn't conducive to a recovery in prices," CISA said.

According to data from the National Bureau of Statistics, China produced a record 2.22 million tonnes of crude steel a day over the first two months of the year, despite weakness in demand and financial problems at dozens of steel mills.

China's steel market, the world's biggest, has been in the doldrums this year, and worries about potential debt defaults at steel mills last week triggered the biggest daily drop in global iron ore prices since 2009.

CISA said a seasonal improvement in the sector was already evident, noting that steel product demand actually grew more quickly than expected in early March, with non-steel mill inventories in major cities, built up while prices were at their eight-year low, already starting to fall.

However, it added that overall steel production remained too high, and that prices were unlikely to recover sufficiently to improve poor steel mill margins.