During the recession, the speed of reorganizations and M&A in the industry would accelerate, because the costs of doing M&As would be lower and their success rates higher, Zhang said.

Zhang pointed out that China exported 1.91 million tons of steel billets this January, a year-on-year decrease of 54.6 percent, while exports were 1.56 million tons in February, a decline of 49.7 percent compared with the same period last year.

"Most of these exports were ordered last year, and because of exchange rate fluctuations, we may see net imports in March," Zhang said. "The exports are estimated to decrease 80 percent for the whole year. Direct and indirect steel exports account for 24 percent of the total steel output. This gap cannot be made up by expanding domestic demand."

Shan Shanghua, Secretary-General of the CISA, told Beijing Review that China's steel industry faces two salient problems this year. First is the serious capacity surplus compared with demand. The statistical report for the country's steel industry in 2007 showed that the annual production capacity of crude steel was 610 million tons. In 2008, newly increased production capacity of iron smelting, steel smelting and hot rolling was 50 million tons. Affected by the economic situation at home and abroad, all the increased capacity will be massively released in 2009. The structural imbalance among varieties of steel products would be particularly salient this year, and the problem of capacity surplus would be more serious in the second half of this year, he said.

Second is the problem whether the prices of raw materials and the selling prices of rolled steel can be balanced, Shan said. One of the key conditions that would allow China's steel industry to eliminate its deficits hinges on whether iron ore import prices will fall to a reasonable level compared with the selling price of rolled steel, he said.

Shan said the country's steel companies must try to break through the difficulties through restructuring and acquisitions as they confront the present sluggish market. Although the financial crisis has hurt the steel industry, it also offers a rare opportunity for steelmakers to thoroughly readjust and optimize their industrial structure, he said.

"Judging from present circumstances, the timing for restructuring steel companies is ripe, which offers a good opportunity for the industrial upgrading," Shan said.

Ren Baode, Secretary-General of the Guangdong Association of Metal Materials Trade, told Xinhua News Agency that an ongoing challenge to the sector's restructuring is that steel companies are widely dispersed, and their industrial concentration is low. If they failed to unite to tackle the current challenges they face on the international market, the companies would have no way out. However, the sluggish market will serve as an impetus for them to take collective action to speed up the industry's restructuring process, he said.

Ren said demand for rolled steel at home and abroad will both markedly drop this year, and prices of rolled steel on the domestic market will plummet, putting the entire industry in a difficult position where it either could break even or post low profits. This would further polarize companies so that the sector's restructuring would be sped up, he said.