Output in China's steel industry has continued to rise and prices continue to fall, as the government struggles to reduce capacity in the sector.

Crude steel production gained 2.7 percent year on year to reach 343 million tons in the first five months of the year, although the growth was down 5.3 percentage points from the same period last year, the National Development and Reform Commission (NDRC) said in an online report.

During the January-May period, the steel price index came in at 95.09, down 0.66 from a month earlier, according to the NDRC.

In the first four months, the steel industry earned 41.2 billion yuan ($6.7 billion), down 16.4 percent.

The government has been at pains to digest production gluts from an investment boom spawned by generous subsidies in the past few years that saw producers in "favored" sectors, including steel, expand rapidly with little regard to real market demand.

To gradually solve the problem, a ban of new projects in steel, cement, electrolytic aluminum, flat glass and shipbuilding industries before 2017, and a gradually elimination of existing substandard projects are underway.