But like every dark cloud has a silver lining, the dismal returns have propelled many steelmakers to test the real estate waters to shore up revenues. According to National Business Daily, most of the top 10 Chinese steelmakers have ventured into real estate development.

The iron and steel industry had a relatively low sale profit rate of about 2.4 percent last year, and 2.9 percent in 2010. The most profitable year for the industry was 2005, when the number reached 6 percent. Compared with the huge payback in the real estate market, the raw material industry has witnessed only slower returns.

Though most of the steelmakers have defended their recent property moves as housing programs for employees, analysts say such diversification strategies may not be enough to pull them out of the woods.

"To tide over the difficult economic situation, iron and steel companies should try to upgrade their production process to further lower costs and improve quality," says Li from Metallurgical Industry Planning and Research Institute.

According to Li, the iron and steel industry in China is still fragmented despite the more than 30 years of existence. The unorganized nature of the iron ore trade has made it difficult for the industry to look for ways to lower production costs, say experts.

"The property market's performance has a huge influence on the iron and steel industry. But when the realty industry is transferring to the next level, the iron and steel industry should also try to improve its own system and create a healthy growth mode which is less reliant on realty demand," Li says.

zhaoyanrong@chinadaily.com.cn

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