The mainland steel industry still made losses in the first quarter and its outlook for the second quarter remains challenging because of a sharp drop in product prices, senior executives of two major players say. The second-half prospects were more promising as iron ore prices had fallen 40 per cent and steel demand had picked up since Beijing's 4trillion yuan (HK$4.54 trillion) economic stimulus package, but overcapacity remained a concern, they said. Product prices had fallen for the past nine weeks with the average price now just 7 per cent below the trough in the last round of decline late last year, Tang Fuping (right), the vice-chairman of Liaoning-based Angang Steel said. Market prices of four major steel products had fallen 16 to 22 per cent since early February, said Su Jiangang, the general manager of Anhui-based rival Maanshan Iron & Steel. 'However, the industry's losses in the first and second quarters should not be bigger than in last year's fourth quarter,' Mr Tang said. 'The huge fourth-quarter loss was due to high-cost inventory.' The China Iron and Steel Association said the industry racked up 47.7 billion yuan of losses in the fourth quarter, with 29.1 billion yuan incurred in December alone. Angang posted a profit in first two months this year, company secretary Fu Jihui said. It recorded a 5.26 billion yuan loss in the fourth quarter and a 60 per cent dive in full-year profit to 2.99 billion yuan. Maanshan Iron lost 2.33 billion yuan in the fourth quarter, while its full-year profit plunged 71.3 per cent to 710.23 million yuan. Angang booked an inventory write-down of 1.93 billion yuan, and Maanshan Iron 1.7 billion yuan. Despite falling steel prices, Maanshan Iron's deputy manager of planning and finance department said the company was not expected to book further significant write-downs for the first quarter, as the current spot market price of iron ore, which made up the vast majority of last year's write-down, was in line with that of December 31. The company keeps four months of ore inventory but only five days of steel products stock. Although demand had gained in the railway, oil and gas pipeline, home appliance and vehicle sectors, the key to profit revival lay in the local government's success in shutting inefficient excess capacity, Mr Su said. He said about 40 million tonnes of roughly 100 million tonnes of excess capacity needed to be taken out to restore supply-demand balance.