Falls in the prices of iron ore and coal helped Chinese steelmakers to gain better profits for the first half even though the domestic industry still faces a serious overcapacity problem, experts said on Friday.

The large and medium-scale steel companies had a total profit of 7.48 billion yuan ($1.21 billion) for the first half, up 4.3 billion yuan compared with the same period last year.

Zhang Changfu, vice-chairman of the China Iron and Steel Association, said falls in the price of iron ore and coal were the major reasons for the better performance in the first half.

Iron ore prices have been falling due to an increasing supply from the international market. The cost of iron ore fell from $120 a metric ton in February to below $90 a ton in June. The price remained between $90 and $97 a ton in July.

The association said China imported 457 million tons of iron ore in total for the first half, up 19 percent year-on-year. The domestic iron ore output was 711 million tons, up 9.9 percent year-on-year.

The supply exceeded demand by 52 million tons for the first half.

Although the steel companies saw costs decline in recent months, the downstream demand remained weak.

The nation's apparent crude steel consumption for the first six months totaled 376 million tons with a slight growth of 0.6 percent compared with the same period last year.

The country's crude steel output during the same period was 412 million tons, up 2.99 percent year-on-year. Zhang forecast that crude steel output growth will be around 3 percent for the whole year.

"The central government should strictly regulate the domestic new steel production capacity and carry out standards for steel mills' emissions in order to improve the industry," he said.

According to Zhang, the State Council (cabinet) is working on two documents about State-owned company reform involving the steel industry, which will be carried out in the second half.

"We will establish a platform for private and State-owned companies to discuss mixed-ownership reform, providing suggestions to related authorities," he said.

Zhang said there should be no limits to foreign investors.

"The international level of China's steel industry is low. We should change this situation and be more open to foreign capital, which will be beneficial to both industries," he said.