* Shanghai rebar posts biggest weekly loss in 3 months
* Iron ore also in fifth weekly losing streak
* China daily crude steel output stays at record high
By Manolo Serapio Jr
SINGAPORE, May 18 (Reuters) - China steel futures fell for a fifth time in six sessions on Friday and posted their worst week in three months, dogged by weak demand in the world's biggest consumer that has pushed down iron ore prices to five-month lows.
A sustained fall in spot prices of iron ore has prompted some Chinese steel mills to delay deliveries of shipments from miners and also limited the chances of marginal suppliers eyeing a slice of the Chinese market.
The most-traded rebar contract for October delivery on the Shanghai Futures Exchange dropped 0.4 percent to close at 4,074 yuan ($640) a tonne, putting its weekly loss at more than 2 percent, the steepest since mid-February.
This week marked the fifth straight week of decline for rebar, or reinforcing bar, a steel product used in construction.
The weakness in steel continued to weigh on iron ore, with sellers cutting price offers for a third time this week on Friday, according to Chinese consultancy Umetal.
Benchmark iron ore with 62 percent iron content.IO62-CNI=SI fell for an eighth straight day on Thursday, to hit $133.60 a tonne, the lowest since December 2011, based on data from the Steel Index.
"We're not in the mood to buy cargo at this point because it would be very difficult to sell in the current environment," an iron ore trader in Shanghai said.
"Some mills are also very reluctant to take cargo, they prefer to buy either port stocks or from local miners."
Iron ore stockpiled at Chinese ports, which were bought previously, are around $4-$5 per tonne cheaper than fresh cargoes. Chinese steel producers also tend to use more of the inexpensive lower-grade iron ore available locally to keep costs down especially given slow-moving steel inventories.
RECORD STEEL OUTPUT
The surplus of steel is also weighing on prices. China's daily crude steel output hit a fresh record of 2.045 million tonnes in the first 10 days of May, data from industry group China Iron and Steel Association showed on Friday.
Given China's huge steel production capacity, mills tend to continue to produce more, even at thin margins, to keep their market share and since it would be more costly to shut down then restart blast furnaces especially for the smaller producers.
China's slower appetite for iron ore has made it more difficult for smaller suppliers to the world's top market.
A 23,000-tonne cargo from Honduras is stuck at sea near China waiting for a buyer, said another Shanghai-based trader,adding a 53,000-tonne cargo from Romania is also on its way to China with no specific buyer.
Marginal suppliers usually sell their iron ore shipments via private negotiations with Chinese buyers, but lower-grade cargoes with high impurities are more difficult to sell during tough times.
"People are just not even keen to consider them especially when the market is falling. All these high impurity material are
worthless," said a Hong Kong trader.
Spot sales by top miners this week showed a further slide in prices. BHP Billiton sold Newman iron ore fines at $137 a tonne at a tender on Thursday, down sharply from $149 at a tender in early May, the second Shanghai trader said.
BHP also sold MAC fines at $133.60 a tonne, down $6 from a prior sale last week.
Top miner Vale also sold a cargo earlier this week that was more than $5 a tonne lower than a previous sale.
"There's a big chance the freefall in prices of both steel and iron ore will continue until the end of this month. I haven't seen any sign that prices will stabilise yet," said the second Shanghai trader.
For a third day in a row on Thursday, there were no deals on China's physical iron ore trading platform, which debuted last week, according to the website of platform operator China Beijing International Mining Exchange.
Shanghai rebar futures and iron ore indexes at 0715 GMT
Contract Last Change Pct Change
SHFE REBAR OCT2 4074 -18.00 -0.44
PLATTS 62 PCT INDEX 135.25 -1.00 -0.73
THE STEEL INDEX 62 PCT INDEX 133.6 -1.50 -1.11
METAL BULLETIN INDEX 134.33 -0.54 -0.40
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3252 Chinese yuan)