China's steel industry is facing a problem of overcapacity, with steel prices at 1994 levels, a senior official said.

"The steel industry is facing an increasingly difficult time, and the surplus capacity is worsening," said Zhang Changfu, secretary-general of the China Iron & Steel Association, at an annual meeting organized by mysteel.com, a steel industry website.

The sales margins of China's major steel makers averaged a negative 0.18 percent in the first 10 months of the year, and overall the steel industry is at break-even point, according to Zhang.

Meanwhile, new capital, mostly from non-State owned companies, is pouring into the industry. From January to October, a total of 414.27 billion yuan ($65.82 billion) was injected in the steel industry, an increase of 3.9 percent year-on-year.

"The high investment will apparently intensify the oversupply in the steel industry," Zhang said.

CISA projected that China's crude steel output will increase 3 percent year-on-year to reach 723 million tons in 2012, but the whole year consumption will be about 679 million tons, up 1.8 percent year-on-year.