Seventy-seven large and medium-sized Chinese steel firms saw profits surge by 108.75 percent in the first half over the same period last year, the China Iron and Steel Association (CISA) announced on Monday.

Their combined net profits rose to 78.274 billion yuan (US$10.3 billion), said Luo Bingsheng, deputy head of the CISA. Their sales soared 34.89 percent year-on-year to 921.26 billion yuan (US$121.5 billion).

"Their production costs jumped 8.34 percent in the first six months due to higher coal and iron ore prices."

Luo said the cost, insurance and freight price of iron ore averaged US$74.64 per ton, US$13.23 higher than the same period last year.

The iron ore price hikes added additional costs of 18.89 billion yuan as China imported 187.9 million tons of iron ore in the first half.

The industry's fixed assets investment hit 125.16 billion yuan, an increase of 8.4 percent from a year ago. Luo said 59.2 percent of the investment went to projects in which investment exceeded one billion yuan each.

"This indicates the industry is building more large, modern facilities rather than small outdated ones," he said.

The government has been encouraging the elimination of small outdated steel firms and the formation of large steel giants to save energy and improve competitiveness.

Luo said crude steel output in China, whose steel output accounts for around one third of the world total, climbed 18.92 percent to 237.58 million tons in the first half from the same period last year.

He forecast the crude steel output would rise 14 percent year on year to 480 million tons in 2007 and the domestic demand for crude steel would grow 12 percent to 446 million tons.