* Shanghai rebar also down more than 2 pct
* Chinese banks told to strictly control credit to steel
* China wants 23 northern cities put on red alert for smog
(Recasts, adds comment, updates prices)
By Manolo Serapio Jr
MANILA, Dec 16 Chinese iron ore futures dropped
more than 2 percent on Friday as steel prices lost ground in
afternoon trading, with steel mills holding off on buying the
raw material in the physical market after recent rapid gains.
But steel prices could bounce back as China sustains efforts
to curb overcapacity in the sector by limiting credit and
Iron ore on the Dalian Commodity Exchange closed
down 2.4 percent at 591.50 yuan ($85) a tonne. It hit a nearly
three-year high of 657 yuan on Monday.
"We're just hearing on the physical side that buying
appetite for iron ore has waned at the ports," said Kelly Teoh,
iron ore derivatives broker at Clarksons Platou Futures.
"I think the steel mills are just holding off on buying at
The most-active rebar on the Shanghai Futures Exchange
fell 2.2 percent to end at 3,293 yuan a tonne, after
rising to 3,409 yuan in morning deals.
The construction steel product still gained about 1 percent
for the week, having touched a 32-month peak on Monday.
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.
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.
China's fight against smog has also forced mills to curb
steel output. Environmental authorities have advised 23 northern
cities to issue red alerts, the highest possible air pollution
warning, on Friday evening, against the "worst" smog the country
has experienced since autumn, state media said.
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 = 6.9485 Chinese yuan)
(Reporting by Manolo Serapio Jr.; Editing by Richard Pullin)