Such overcapacity means steel companies like Bayi Iron & Steel Co, Ltd must compete with each other with lower prices in order to survive the fierce competition.

Sitting on the highest debt-to-asset ratio, Bayi attributed its loss of 719 million yuan in the first half of the year to weaker demand from the property and infrastructure construction sectors.

"The demand has dwindled greatly and the steel market is flagging," the steel company said in its note to investors.

In the January-June period, Chinese steel companies posted a combined profit of 2.27 billion yuan, reversing a loss of 2.33 billion yuan in the first quarter, according to the CISA data.

But the profit is brought by 4.32 billion yuan in investment revenues and 3.88 billion in non-operating income, rather than their loss-incurring core steelmaking business.

Under such pressure, Xu said, many steelmakers may have to cut or even suspend their production to get through hard times.

"If their money is draining, selling fixed-assets in exchange of operating liquidity is also another option for steel companies, " Xu said.

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