Profits at 77 of China's major large- and medium-sized steel mills in September fell 20.25 percent year on year to 5.82 billion yuan ($872.47 million) due to rising raw material costs and lower steel product prices.

A total of 10 steel mills were in the red over the first nine months of the year, when the average price of imported iron ore — including cost, insurance and freight — rose 56.31 percent to $121.7 per ton from $77.86, while coking coal prices rose 28.83 percent, the China Iron and Steel Association said Friday at a press conference.

As costs go up, steel mills can't sell their steel products at prices high enough to offset lofty costs as excess capacity enters the market, according to the association.

The situation is expected to worsen in the fourth quarter as exports drop, putting more pressure on the domestic market, the association said.

The balance of imports and exports from January to September showed the net export of crude steel hit 22.51 million tons, accounting for 41.96 percent of the increased output over the same period.

The association attributed the drop in exports to the cancellation of the government's steel export rebate, the strengthening yuan, weakening demand overseas and trade protectionism in the world steel market.

The country cancelled the export rebate on many steel products in July, which accounted for around 45 percent of the country's total steel exports in the first half.