GROWTH in demand for steel may ease to 2.6 to 4.6 percent per year in China during the 2011-2015 period as the economy grows at a slower pace, an industry group forecast.

Slower demand growth is forcing the industry to phase out excess capacity and focus on quality and profitability, the China Iron and Steel Association said yesterday. Crude steel output rose 9.3 percent to 627 million tons last year, while capacity stood at 768 million tons at the end of 2010.

High raw materials costs and oversupply have depressed profit margins for the nation's 77 major steel companies to 2.9 percent in the first quarter, the association said. That compared with a 6.2 percent average in the industrial sector.

Earlier this week, Angang Steel Co said first-quarter net profit plunged 94 percent while Maanshan Iron & Steel Co posted a 80 percent drop.

However, daily crude steel production reached a record 1.93 million tons in the first two months, or an annualized 706 million tons, the association's figures showed.

Zhang Changfu, vice chairman and secretary general of the CISA, blamed small mills for the supply glut. Output at small-scale mills jumped 53 percent in January and February from a year earlier.

Still, at a forum in Beijing earlier this week, Baosteel Group Corp Chairman Xu Lejiang said rising iron ore prices are not sustainable.

Global supply and demand conditions may reverse sooner than expected in the ore mining sector, Xu said.