SEVENTY-SEVEN medium- and large-sized steel companies in China have reported a combined gross profit of more than 7 billion yuan (US$1.05 billion) in October, up 21 percent from September, according to the China Iron and Steel Association.

Although the profit was the highest in recent months, margin remained low at 2.84 percent in the first nine months as the domestic steel industry was caught between high raw material prices and overcapacity.

These member companies of the association generated a revenue of 64 billion yuan between January and September, almost doubling from a year earlier. However, profit was only 13.3 billion yuan in the third quarter, down 54 percent from the previous quarter.

Industry officials said oversupply could be eased as regional governments closed steel mills to meet year-end energy-efficiency targets, though steel demand in winter is traditionally weak.

The association last week said although the supply/demand situation is improving, oversupply still exists and so a large increase in steel prices is impossible. It expected domestic steel prices to remain volatile in the remainder of the year. Steel prices surged to an intra-year high earlier this month but have since retreated.

He Wenbo, general manager of Baosteel Group Corp, China's second-largest mill by capacity, last week warned the global steel industry is in for a long difficult period.