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* Shanghai rebar up slightly for the week
* Chinese banks told to strictly control credit to steel firms
By Manolo Serapio Jr
MANILA, Dec 16 (Reuters) - Shanghai steel futures steadied on Friday after another volatile trading week, supported by China's campaign to slim down its bloated sector.
China's banking regulator said banks must strictly control credit to coal and steel firms that are violating capacity cuts, the latest in a series of regulations aimed at reducing loans to industries struggling with overcapacity.
The world's top steel producer has cut 88 million tonnes of steel capacity this year, nearly double the target of 45 million tonnes and helping fuel an 88 percent rally in steel futures.
The most-active rebar on the Shanghai Futures Exchange was up 0.2 percent at 3,374 yuan ($486) a tonne by midday. The construction steel product has gained marginally this week, having retreated after touching a 32-month peak on Monday.
Since November, China's crackdown has focused on producers of low-quality steel that use induction furnaces which consume steel scrap as raw material.
"The total supply loss from induction furnaces may account for 5-6 percent of Chinese crude steel production, and this could create potential upside to steel prices into 2017 if implementation is comprehensive and sustained," Goldman Sachs analysts said in a report.
Iron ore on the Dalian Commodity Exchange was almost flat at 606.50 yuan a tonne. The contract hit a nearly three-year high of 657 yuan on Monday, backed by the strength in steel prices.
Both iron ore and steel prices "will remain resilient over 2017, following strong gains in 2016, as additional Chinese infrastructure spending will tighten the market," according to BMI Research, a unit of Fitch Ratings.
That should support iron ore prices over the next six to nine months although BMI said it sees a "relapse later in 2017-2018 stemming from a slowdown of the country's construction activity and the oversupplied seaborne iron ore market."
Iron ore for delivery to China's Qingdao port .IO62-CNO=MB rose 2.9 percent to $81.50 a tonne on Thursday, according to Metal Bulletin. The spot benchmark was nearly flat so far this week after gaining 5 percent last week.
$1 = 6.9459 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Richard Pullin