Profits at China’s large-scale steel companies in June fell 37.8% from a year ago due to higher raw material costs and declining product prices, the country’s steel association said.

China Daily newspaper reports that China Iron and Steel Association general secretary Shan Shanghua told industry delegates that a large number of steel firms were facing losses in the second half of the year.

Figures for the first half of the year as a whole put the profits of China's largest steel firms at RMB50.71bn ($7.48bn), 21 times higher than last year when the industry was ravaged by a global financial crisis and a collapse in export markets.

The industry as a whole performed much better than expected from the second half of last year, with domestic demand surging as a result of stimulus-driven infrastructure and real estate spending coupled with record automobile sales.

But since April, the sector's underlying problems of overcapacity and bulging stockpiles have been exposed again as construction steel demand slows as a result of government policies designed to curb real estate overheating.

The problems facing the industry were getting worse, Shan told delegates, and there was no sign of any improvement in the months to come.

The decision made to cancel export tax rebates on steel products from July 15 would also hit the sector hard, Shan added.