SHANGHAI/SINGAPORE, July 9 (Reuters) - Shanghai steel futures dropped for a second day on Monday as demand in the world's top steel consumer remained tepid, although Beijing may come up with more steps to revive growth after consumer and producer prices eased more than expected.
China's annual consumer inflation slowed to a 29-month low of 2.2 percent in June, while producer priceseased even fasterto a 31-month trough.
The data signalled falling demand for goods in the world's No.2 economy and the likelihood Beijing would do more to support growth, such as cutting interest rates further.
The most-traded rebar contract for October delivery on the Shanghai Futures Exchange fell more than 1 percent to a near one-week low of 4,042 yuan ($640) per tonne. By the close, it stood at 4,050 yuan, down 0.95 percent.
"The steel market will have upward momentum given that Beijing cut interest rates last week and may take more measures to support growth. But it will take time and forces driving up steel prices will still be weak," said an iron ore trader in Beijing.
Falling producer prices show that end-user demand for China's factory output - particularly from overseas customers -is declining as the global economy weakens, providing more room for Beijing to tweak monetary and fiscal policy to boost the economy.
But the seasonal slowdown in construction activity due to hot summer weather could offset support from efforts to revive economic growth, with steel prices unlikely to get a boost until August.
As a result, traders are expecting only a marginal improvement in prices of iron ore, the main raw material in steelmaking.
"Economic growth should have hit bottom by the second quarter and July could see better growth, which will provide some relief to iron ore, but not much in the short term," said a second Beijing-based iron ore trader.
Spot iron ore prices were unchanged on Monday, with Australian cargoes for 61.5-percent grade fines being offered in China at $136-137 per tonne, according to industry consultancy Umetal.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI gained a marginal 0.2 percent to $135.10 per tonne on Friday, based on data from Steel Index.
Shanghai rebar futures and iron ore indexes at 0426 GMT
Contract Last Change Pct Change
SHANGHAI REBAR* 4050 -39.00 -0.95
PLATTS 62 PCT INDEX 136.5 0.00 0.00
THE STEEL INDEX 62 PCT INDEX 135.1 0.30 0.22
METAL BULLETIN INDEX 136.27 0.15 0.11
#Index in dollars/tonne, show close for the previous trading day
($1 = 6.3644 Chinese yuan)