According to a report released by China Metallurgical Industry Planning and Research Institute, steel production in China is unlikely to recover next year as demand for iron ore will further decline by 4.2 percent. The report suggested that steel production will decline by 3.1 percent to 781 million tonnes with the trudging pace of the economy.

The Monday’s forecast has underscored the weak scenario for the iron and steel sector. According to predictions, the fall in steel production will result in a significant drop in the demand for iron ore by the world’s top iron ore consumer.

The consumption of steel products will also subsequently decline to 648 million tonnes in 2016. "With a slowdown in steel for construction, machinery and vehicles we saw consumption decline for the first time in 20 years," the report said.

The forecast comes at a time when Australian iron ore miners are already battling a record-low iron prices of US$40 (AU$54) a tonne. In China, over supply in the property sector, reduced the demand for steel products.

"Overcapacity remains big, it will take time to solve inventories and overcapacity, which will bring more downward pressure on industries," MPI said in a statement released on Monday.

However, the report predicts that though steel demand for machineries, construction and home appliances will fall further in 2016, there are chances of 1 percent rise in demand of it from vehiclemakers.

Around 18 million unsold apartments in China have created a glut in the economy, according to the China Academy of Social Sciences. But it is expected to clear out in near future as well.

"Over-investment and excessive inventory [in the property market] will still be the main problems in 2016," said the report.

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