July 30, 2010 –   * Steel firms facing losses in H2 in price and cost squeeze

* No improvement expected over the next few months

* End to export tax rebates hitting firms hard

BEIJING, July 30 (Reuters) - Profits at China's large-scale steel enterprises in June fell 37.8 percent from a year ago due to higher raw material costs and declining product prices, the country's steel association said on Friday.

At an internal meeting, China Iron and Steel Association general secretary Shan Shanghua told industry delegates that a large number of steel firms were facing losses in the second half of the year.

Figures for the first half of the year as a whole put the profits of China's big steel firms at 50.71 billion yuan ($7.48 billion), 21 times higher than last year when the industry was ravaged by a global financial crisis and a collapse in export markets.

The industry as a whole performed much better than expected from the second half of last year, with domestic demand surging as a result of stimulus-driven infrastructure and real estate spending coupled with record automobile sales.

But since April, the sector's underlying problems of overcapacity and bulging stockpiles have been exposed again as construction steel demand slows as a result of government policies designed to curb real estate overheating.

The problems facing the industry were getting worse, Shan told delegates, and there was no sign of any improvement in the months to come.

"It will be very hard to fundamentally change the situation in the second half," he said.

The decision made to cancel export tax rebates on steel products from July 15 would also hit the sector hard, Shan added.

If export rebates were stripped away from steel enterprises from January to May, they would have faced additional costs of 5 billion yuan, he said.

($1=6.776 Yuan)

(Reporting by Beijing Newsroom, Writing by David Stanway, Editing by Ken Wills)