Steel prices in China, the world's biggest steel producer and consumer, rose mildly last week as market sentiment improved slightly but demand remained subdued, latest industry data showed.

The composite steel price index compiled by industry watcher Mysteel.com rose to 97.84 points last week, up 0.81 percent from a week earlier.

The figure pointed to increased market confidence, but higher freight rates and weaker-than-expected demand put a lid on transactions, according to a Mysteel.com report.

Inventories are expected to rise after the National Day holiday as new products hit the market, adding pressure on steel prices, said the report.

China's steel industry has long been plagued by overcapacity, which has become a major drag on China's growth in the past few years.

The sector's profitability improved in recent months, partly due to the government's efforts to reduce capacity, but analysts warned that excessive supply remains huge.

China has shut down steel plants with total capacity of over 90 million tonnes over the past five years and plans to reduce output by an additional 100 million to 150 million tonnes by 2020.

As of July, China had achieved 47 percent of its target to cut steel capacity by 45 million tonnes this year.

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