China's crude steel output in the first half of the year hit 323 million tonnes, up 21.09 percent year on year, sparking concern about increases in inventory and second half production.

Crude steel output per day in the first half averaged 1.7855 million tonnes, up 14.77 percent compared to the same period last year, Luo Bingsheng, vice president of the China Iron and Steel Association (CISA), said Tuesday.

The growth in output came on the back of increased domestic demand and expectations for steel price rises, Luo said at a press conference.

China's economy expanded 11.1 percent year on year in the first half of 2010, with fixed-asset investment rising 25 percent to 11.4187 trillion yuan (1.67 trillion U.S. dollars).

But the rapid growth in production is leading to oversupply, with CISA figures showing total inventory at China's 22 large and medium-sized cities had reached 10.8 million tonnes by the end of June, up 34.16 percent since the beginning of the year.

The sector's total electricity consumption in the first half jumped 29.3 percent year on year while exhaust gas emissions rose 13.18 percent, adding more pressure as well for the environment, Luo said.

He said 77 large and medium-sized steel companies surveyed by the association reported combined revenues of 1.46 trillion yuan for the first half of the year, up 46.06 percent year on year.

Profits reached 50.72 billion yuan, compared to 48.44 billion yuan during the same period last year, but the profit-to-sales ratio was only 3.47 percent, lower than the average profit margin among China's industries.

Further, oversupply may lead to a decline in steel prices and Luo Bingsheng forecast output to fall in the second half.

He said steel companies were also facing heavier pressure in production costs due to rising prices in iron ore imports, adding "the earnings prospect will be severe for the sector in the second half".

Luo revealed that the CISA was now revising the standards for domestic importers of iron ore. The new standards would focus on energy savings, emission controls and capital adequacy of the importers.

He said the standards would be more strict and the number of importers would be reduced in a move to normalize domestic iron ore import trading.

"We are making a new list of qualified importers and we will publicize it soon," he said, without providing more details.

Meanwhile, the CISA also pushed for an iron ore import proxy mechanism to ensure supplies for companies without import licenses, Luo said.