China's steel production has plateaued and mills are focusing on complying with tougher anti-pollution measures instead of expanding capacity, a senior official at the China Iron and Steel Association (CISA) said on Wednesday.
The fight against pollution has led to the closure of some steel mills in China, the world's biggest producer of the alloy, where output reached a record high of 779 million tons last year.
A recent tightening of credit has also increased their costs. The squeeze in credit lines has led to a 22 percent jump in steel makers' financial costs in the first quarter from a year ago, compared with a 3 percent drop last year, according to the CISA.
"The urge to expand has been curbed," Wang Xiaoqi, vice president of the CISA told an industry conference.
"Companies are no longer expanding capacity. They are putting an emphasis on environmental protection."
Separately, Liu Yinan, vice chairman of the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters, said Chinese iron ore importers continue to lack any leverage in negotiating with powerful global miners.
"Price negotiating power is severely lacking. Iron ore suppliers are highly concentrated while the demand side is highly fragmented," said Liu.
China has been trying to cut its reliance on iron ore from top suppliers Vale, Rio Tinto and BHP Billiton in a bid to reduce its exposure to volatile seaborne prices of the raw material.
Baoshan Iron and Steel on Monday made a A$1.14 billion ($1.06 billion) takeover bid for Australia's Aquila Resources in a move that could help China's biggest listed steelmaker to secure supply and rely less on Vale, Rio Tinto and BHP.
Still, Liu said it would be difficult to consolidate China's steel sector, a process that would give it better negotiating power.
"China's steel industry has to go through some adjustments and it will be a very slow process," said Liu.