Steel demand in China will shrink this year and next to extend the first annual contraction since 1995 as economic growth in the world's biggest producer slows, according to the World Steel Association.

China's steel use will drop 0.5 per cent to 707.2 million metric tons in 2015 and fall to 703.7 million tons next year, the group said in a statement. In 2014, demand declined 3.3 per cent to 710.8 million tons, according to the Brussels-based body, whose members account for 85 per cent of global output.

China's government is battling a property slump, excess capacity and capital outflows, with the economy expanding last year at the slowest pace since 1990. To shore up the expansion, the central bank relaxed rules on home purchasing, cut interest rates and reduced the amount of cash banks must set aside as reserves. Asia's largest economy, which accounts for about half of global steel output, is the largest iron ore buyer.

"Steel demand in 2014 saw negative growth for the first time since 1995 due to the government's rebalancing efforts that had a major impact on the real-estate market," the association said in its short-range outlook on Monday. "In the medium term, no strong rebound is expected."

Global use will rise 0.5 per cent to 1.54 billion tons this year and a further 1.4 per cent to 1.57 billion tons next year, the association said. The group's projections refer to so-called apparent steel use, which reflects deliveries to the market from local producers as well as importers.

China's crude-steel output fell 1.7 per cent to 200.1 million tons in the three months through March from a year earlier, according to statistics bureau data last week. The economy expanded 7 per cent, the weakest pace since 2009.

Steel production in China will drop 1.2 per cent to 813 million tons this year, before rebounding to 825 million tons in 2016, according to Goldman Sachs Group Inc. From then on, output will shrink through 2019 to 752 million tons, the bank said in a report on Thursday, which cut forecasts for iron ore.

Iron ore lost 28 per cent this year on slowing demand in China and surging low-cost supply from Australia that spurred a global glut. Ore with 62 per cent content at Qingdao was at $51.57 a dry ton on Monday, according to Metal Bulletin Ltd. It fell to $47.08 on April 2, the lowest since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks for ore delivered to China from Clarkson Plc.

The forecast came as Rio Tinto reported weaker than expected iron ore exports in the first quarter of the year.