April 24, 2017 / 3:50 AM / 3 years ago

China iron ore, steel resume decline as slack demand weighs

* Steel supply growth outpacing demand - Argonaut analyst

* Inventory continues decline, lowest since late Jan

By Manolo Serapio Jr

MANILA, April 24 (Reuters) - Steel and iron ore futures in China fell 1 percent on Monday, as the two commodities retreated on lingering worries over weak demand in the world’s top steel consumer after a two-day spike.

China’s crude steel output surged to a record 72 million tonnes in March as mills ramped up output, hoping an early-year rally in prices would be sustained as the country headed for its usually brisk second-quarter period.

But supply growth has so far outpaced consumption this month.

“Demand is okay. It’s just that production is much stronger than demand,” said Helen Lau, analyst at Argonaut Securities.

The most-active rebar on the Shanghai Futures Exchange was down 1.3 percent at 2,881 yuan ($419) a tonne by midday, after falling as far as 2,851 yuan.

Iron ore on the Dalian Commodity Exchange was off 1 percent at 496.50 yuan per tonne, having dropped to as low as 486.50 yuan earlier in the session.

A sustained decline in inventory of steel products among Chinese traders suggests demand remains firm, said Lau, but may be not as strong as many in the market had initially expected.

Stocks of five major steel products - including construction-used rebar - held by traders stood at about 12.9 million tonnes as of April 21, the lowest since late January, said Lau, citing data from Mysteel consultancy.

While Chinese mills may have not cut production so far, a “further decline in prices would be the catalyst,” said Lau.

Coal used in steelmaking also dropped. Coking coal on Dalian fell 4.6 percent to 1,085.50 yuan a tonne and coke slid 4 percent to 1,573.50 yuan.

Further weakness in futures could push down spot iron ore prices again after a three-day rally.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB climbed 4.4 percent to $68.22 a tonne on Friday, marking its biggest single-day increase since Feb. 13, according to Metal Bulletin. ($1 = 6.8848 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Kenneth Maxwell)

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