Iron ore headed for biggest weekly drop in seven on China steel drag

By Manolo Serapio Jr

MANILA (Reuters) - Spot iron ore prices held near one-month lows and were headed for their steepest weekly fall since early July, with the raw material failing to catch up with a recovery in other commodities amid weak steel prices in China.

Chinese spot steel prices dropped for most of the week, reflecting slow demand in the world's top consumer.

"Mills have been trying to push up steel prices but demand is really weak. It's difficult for them to sell their products unless they lower the price," said a Shanghai-based trader.

Some Chinese mills in the top producing province of Hebei have halted or limited production to clear skies ahead of a big military parade to commemorate the 70th anniversary of the end of World War Two in nearby Beijing, reducing demand for iron ore.

Iron ore for immediate delivery to China's Tianjin port rose 0.4 percent to $53.30 a tonne on Thursday, according to The Steel Index. The spot benchmark hit $53.10 a day earlier, its lowest since July 31.

Iron ore has lost 4.1 percent so far this week, largely reflecting its Monday slide when a slump in China's equity markets fed a global rout that stretched to commodities.

Other commodities from oil to copper have since rebounded, but spot iron ore has barely moved. Even iron ore futures in China have risen, climbing 4 percent on Friday to hit its upside limit of 382 yuan ($60) a tonne.

While China's devaluation of its yuan should stimulate overseas sales, it is "unlikely to be sufficient to prevent local prices declining in the short term as sales to Chinese customers are expected to slow in the coming months," global steel consultancy MEPS said in a report.

Some new government-led projects including railway construction may help perk up steel demand in China in September, the Shanghai trader said.

"But it may only be enough to stop steel prices from dropping further because it will be difficult for prices to rise sharply," he said.

Construction-used rebar on the Shanghai Futures Exchange was up 0.6 percent at 1,970 yuan a tonne by midday. The most-traded contract fell to a record low of 1,917 yuan on Tuesday.

($1 = 6.3920 Chinese yuan)

(Reporting by Manolo Serapio Jr.; Editing by Joseph Radford)