Xinhua reported that China's largest iron and steel group is determined to cut output and upgrade production as it copes with the toughest market conditions since 2008.

Mr Kong Ping vice president of Hebei Iron & Steel Group Co Ltd said that the iron and steel industry is in much worse shape than it was a year ago, with more excess capacity and bleaker financial conditions, he said.

A high debt ratio is also a threat for State-owned Hebei Iron and Steel, because the central bank may keep liquidity tight in the short term, according to Kong.

Mr Kong said that "The bottom line is to ensure our capital chain doesn't break in the short term. In order to maintain normal production, we will try any method to control costs."

The iron and steel giant, which was created through the June 2008 merger of Handan Iron & Steel Co Ltd and Tangshan Iron & Steel Co Ltd, said revenue fell 7.83% in the first quarter to CNY 26.86 billion (USD 4.38 billion). Net profit slid 87.82% to CNY 43.8 million. Mr Kong said there will soon be "a new round of mergers and acquisitions in the iron and steel industry.”

Mr Kong said that iron and steel supplies far outweigh demand. The industry's capacity utilization ratio is only 72%. The global rule of thumb is that any industry with a capacity utilization ratio below 78 percent has excess capacity.

Mr Ding Yue, an analyst at China International Capital Corp Ltd, said the industry's profitability in the second quarter probably worsened. Ding said losses will widen further in the third quarter, because the supply-demand gap is expanding.