SINGAPORE, July 10 (Reuters) - Shanghai steel futures hit their lowest in more than eight months on their third straight day of decline on Tuesday after fresh data pointed to flagging domestic demand in the world's No. 2 economy and top steel market.
Limited spot supplies kept iron ore prices afloat, although they may be at risk of turning lower again amid a weak Chinese steel market that have trimmed production from record levels in May.
China's overall imports rose 6.3 percent in June from a year ago, less than half the projected increase in a Reuters poll, with the country's copper and iron ore purchases falling from May.
The key October rebar contract on the Shanghai Futures Exchange hit a session low of 3,983 yuan ($630) a tonne,
its weakest since Oct. 20, 2011. It closed down 1.4 percent at 3,995 yuan.
Steel prices are down nearly 4 percent this year, forcing Chinese mills to curb output from all-time highs above 2 million tonnes on average a day in early May, leading to the fourth month-on-month drop in iron ore imports this year.
The country's daily crude steel output stood at 1.965 million tonnes over June 21-30, down 0.3 percent from the
previous 10-day period, data from the China Iron and Steel Association showed.
China, which buys around 60 percent of the world's iron ore, bought 8.7 percent less of the raw material in June than May. That followed declines in January, March and April.
"We're still expecting steel production to slow from the very high levels in May and because of that we're going to see a dip in iron ore consumption," said Matt Fusarelli, an analyst at Australia-based consultancy AME.
LIMITED DOWNSIDE RISK
While Chinese demand for iron ore has eased, limited supplies in the spot market have kept prices from slipping,
Price offers for imported iron ore in China were steady on Tuesday, a day after benchmark 62-percent grade iron ore
.IO62-CNI=SI gained 0.3 percent to $135.50 a tonne, based on data from the Steel Index.
Iron ore has stayed below $140 since mid-May, as sluggish Chinese steel demand kept any price gains in check.
"I have a few people inquiring for some small cargoes, like 50,000 tonnes, but they want to buy cheap," said a Hong
Kong-based trader. "People are looking for cargo, but there's no rush."
"The limited available material in the market also prevents prices from falling as well. Miners don't want to flood the
market with iron ore anymore, they don't want another October to happen," he said, referring to October 2011 when spot prices slid nearly 31 percent as slower Chinese demand combined with hefty supplies.
Rio Tinto sold a 165,000-tonne cargo of 61.5-percent grade Australian Pilbara iron ore fines at $136.21 a tonne on Monday, lower than the $137.80 transacted for the same grade last week.
"With supply tighter over the next few months I don't see much downside risk to prices," said Graeme Train, a commodity analyst at Macquarie in Shanghai. "But we would want to see an increase in demand into the fourth quarter to offset potentially better supply."
Shanghai rebar futures and iron ore indexes at 0721 GMT
Contract Last Change Pct Change
SHFE REBAR OCT2 3995 -55.00 -1.36
PLATTS 62 PCT INDEX 136.5 +0.00 +0.00
THE STEEL INDEX 62 PCT INDEX 135.5 +0.40 +0.30
METAL BULLETIN INDEX 136.27 +0.15 +0.11
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3714 Chinese yuan)