SHANGHAI, June 8 -- Chinese steelmakers are likely to cut production in the third quarter because of "weak" demand from auto and appliance makers, according to the nation's second- biggest mill.

Slower demand for steel may prompt smaller steelmakers to default on iron ore contracts in the third quarter, Baosteel Group Corp. Chairman Xu Lejiang said today at the Bloomberg Businessweek Green Business Summit in Shanghai.

"Many steelmakers will cut production or carry out maintenance in the third quarter," Xu said. "Steel demand from automotive and home appliance industries has become weak. Iron ore costs will be the highest in the third quarter."

Mills may face a "difficult" second half, Xu said last month as concern increases that measures to curb speculation in the property market will trim demand. Baoshan Iron & Steel Co., Baosteel's publicly traded unit, cut prices on June 4, the first time in eight months.

Bigger steelmakers will respect their iron-ore contracts, Xu said, adding that the quarterly price of the raw material may rise in the third quarter and drop in the fourth quarter.

Prices for 62 percent iron-content ore arriving at Chinese ports have dropped 21 percent to $147.50 a ton from $186.50 on April 21, according to The Steel Index. Iron ore and coking coal are the two key ingredients in steel. Iron ore inventories at major Chinese ports rose 2.1 percent last week as falling steel prices prompted some mills to cut production and buy less, researcher Mysteel.com said June 4.

Chinese steel prices have fallen from an 18-month high on April 15. Demand is declining because of automotive inventories and government curbs on property loans, Wuhan Iron & Steel Group, the nation's third-biggest steelmaker, said last month.