Chinese steel companies are now in a state of "lofty production, high costs, low prices and poor profitability", National Business Daily reported, citing Zhang Changfu, deputy chairman of the China Iron and Steel Association (CISA) at a conference.

Losses of Chinese steel companies have reached an "unbearable" level, Mr. Zhang pointed out, citing that Chinese domestic steel settlement price averaged 3,462 yuan per tonne in the first ten months of this year, down 8.9% from the corresponding period of 2012.

The price falls greatly eroded profit margins in Chinese steel industry, he added.

According to data from the CISA, Chinese steel industry posted a profit of 11.68 billion yuan in the first eleven months of the current year and the profit margin was only 0.48%, indicating a profit of 28 yuan per tonne steel on average. The main business profit of steel companies hit merely 5.8 billion yuan, indicating a profit of only 4.2 yuan per tonne for one tonne of steel produced.

Large and medium-sized steel companies witnessed an improvement in their profit in the third quarter, but on the whole domestic steel prices remained in recession and the situation can hardly change in the short term. Moreover, Chinese steel industry, plagued by financial strain, is still in a midst of resolving overcapacity and the situation of excess capacity is expected to continue into next year.

Meanwhile, Mr. Zhang gave a forecast of 782 million tonnes of crude steel output for the whole of 2013 and said it may grow at a rate of 2-3% to reach 800 million tonnes next year. He also warned that steel companies and steel traders shall be well prepared for a continuing tough time in the future.

Miao Changxing, deputy director of industrial policy department of the Ministry of Industry and Information Technology also pointed out that overcapacity remains as a big threat for Chinese steel industry and main tasks for the industrial transformation and upgrading include giving support to technical innovation of enterprises, promoting green and low-carbon development, resolving severe overcapacity, accelerating elimination of backward capacity, stimulating merging & acquisitions, speeding up transformation and upgrading of enterprises and optimizing industrial layout, etc.

He also disclosed that the MIIT is working to draw up a document for improving industrial policies aimed to promote transformation and upgrading in steel industry and the government is stepping up efforts to formulate stricter standards for environmental protection.