Overcapacity and low prices are eating into steel companies' profits, an industry specialist said.

Zhang Changfu, secretary-general of the China Iron and Steel Association, said on Sunday that the profits of China's steel companies in the year to date was 16.18 billion yuan ($2.65 billion).

"Profit margins are as low as 0.48 percent. The profit for each ton of steel is 28 yuan," said Zhang.

According to Zhang, the average steel price this year is 340 yuan lower than last year, down 8.9 percent year-on-year.

Total crude steel output will be about 782 million tons this year, according to the association.

Zhang estimated that crude steel output next year will increase at a rate of 2 percent to 3 percent, capped at 800 million tons, because of government policy to reduce capacity.