Steel production in China is heading for further contraction

China's steel production fell in August and is likely to decline further throughout the rest of this year, according to an industry report. Experts noted that the trend is a result of weaker market demand and the government's pledge to cut excess capacity.

Typically, steel use in the construction sector accounts for about 40 percent of total consumption, according to research by the Beijing Research Center for Steel Information. As a result, fewer apartments will be built in response to local government policies. This means that domestic demand for steel will continue to decline in the rest of this year, the study said.

Cutting back on excess capacity was the focus during the G20 summit, which also played an important role, experts say. The Chinese government has already stepped up efforts to address this problem. The government has pledged to cut steel capacity by about 10 percent, or 150 million tonnes of steel over the next few years, with the goal of reducing steel production by 45 million tonnes this year alone.

As of July, the country had achieved only 47 percent of its annual steel production decline target. It will be difficult for the government to meet the schedule this year, experts say.