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By Alex MacDonald

LONDON--Global steel demand is set to dip again this year before recovering in 2017 as steel demand from China, the world's largest consumer of the metal, continues to shrink amid slackening domestic economic growth, the World Steel Association said on Wednesday.

Steelmakers around the world are slashing costs, cutting jobs, and selling assets in a bid to preserve cash given the glut of steel globally and slackening demand that have prompted China, also the world's largest steelmaker, to export more abroad.

As a result, steel demand is forecast to shrink 0.8% to 1,488 million tons globally this year compared with a 3% drop last year. It should then rise 0.4% to 1,494 million tons next year, aided by increased demand from the European Union and countries such as the U.S. and others in the North America Free Trade Agreement region.

"The economic environment facing the steel industry continues to be challenging with China's slowdown impacting [steel customers] globally," said TV Narendran, chairman of the economics committee at Worldsteel, an association that represents steelmakers that account for about 85% of the world's steel supply.

In China, Steel demand is forecast to fall 4% this year and 3% next year because of a "severe depression" in construction activities, concerns about the country's real-estate market and a mounting corporate debt problem. China's steel demand fell 5.4% last year, prompting the country's steelmakers to sell their excess supply abroad.

This has a knock-on effect on regional markets such as Europe where India's Tata Steel Ltd.(500470.BY) announced plans to dispose its entire U.K. business after more than nine months of consecutive losses.

Appetite for steel in other emerging markets such as Brazil is also set to continue falling this year before rising again in 2017. A rebound in U.S. demand for the metal and continued EU steel growth should contribute to a rise in global steel demand outside China of 1.8% this year and 3% in 2017.

-Write to Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

April 13, 2016 10:49 ET (14:49 GMT)

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