Shanghai steel futures retreated on Wednesday, pressured by shrinking demand in China that has cut output in the world's top producer in the first half of the year, with a further reduction seen likely.

China's crude steel output dropped 0.8 percent in June from a year earlier, government data showed, bringing January-June production to 409.97 million tonnes, down 1.3 percent from a year ago.

China's economy grew an annual 7 percent in the second quarter, the same pace as in January-March, and slightly ahead of market forecasts for growth of 6.9 percent.

Qiu Yuecheng, analyst with steel trading platform Xiben New Line E-Commerce in Shanghai, said the "biggest concern for steel mills is steel demand is declining this year because of the slowing economy, and some will have to accelerate cuts in steel output in July."

Amid a slowing economy and cooling property market, Chinese steel consumption dropped 5.1 percent in the first five months of 2015.

The most-traded rebar for January delivery on the Shanghai Futures Exchange was down 0.8 percent at 2,057 yuan ($330) a tonne by midday. The most-active contract fell to a record low of 1,891 yuan last week.

"I see a further drop in steel prices. The steel market in China is quite competitive. When demand is weak every mill may choose to drop their prices in order to keep their market share," said a Shanghai-based trader.

Further production cuts in China's steel sector may hit demand for raw material iron ore, limiting any upside potential for prices that last week dropped to below $50 a tonne, the first time since April.

"Market activity remained subdued as buyers continue to bid below $50/tonne and sellers look determined to hold cargoes and wait to get a clearer picture," ANZ Bank said in a note.

Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI fell 1 percent to $49.40 a tonne on Tuesday, according to The Steel Index.

Down for a third year in a row, the spot benchmark has lost nearly 31 percent in 2015.

On Wednesday, the January 2016 iron ore contract on the Dalian Commodity Exchange edged up 0.6 percent to 356.50 yuan a tonne.

 

in.reuters.com

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