Although China's steelmakers saw a big rise in profits last year, the industry still hasovercapacity problems that have dragged prices to record lows.

China's major large and mid-sized steel firms reported 30.4 billion yuan ($5 billion) in profit in2014, a sharp rise of 40.4 percent, the China Iron and Steel Association (CISA) revealed onThursday.

The association attributed the growth to lower fuel prices and cost cutting.

Despite the rise, the CISA cautioned that China's economic slowdown and optimized structure isincreasingly dampening appetite for steel products, adding more pressure to a sector alreadystruggling with overcapacity. China's economy grew 7.4 percent in 2014, the weakest annualexpansion in 24 years.

The CISA asked steelmakers to actively adapt to the changes and transform their businessmodel to foster new profit growth.

In 2014, China produced 823 million tons of crude steel, up 0.9 percent. The China Steel PriceIndex stood at 83.1 at the end of December, down 16.2 percent year on year.