December 23, 2016 / 7:53 AM / 7 months ago

UPDATE 1-China steel, iron ore slip on slow demand but headed for best year ever

3 Min Read

* Dalian iron ore has surged 170 pct this year

* Spot iron ore on track for best year since at least 2008 (Updates prices)

By Manolo Serapio Jr

MANILA, Dec 23 (Reuters) - Steel and iron ore futures in China headed south on Friday amid weak winter demand, but both commodities were well on track to post their biggest annual gains on record after this year's searing rally.

Strong futures helped lift spot iron ore prices by more than 70 percent this year, putting the steelmaking raw material on course for its best year since at least 2008.

But prices were weaker on Friday as steel demand softened, with construction activities slowing down with winter.

Authorities in the city of Tangshan in China's top steelmaking province of Hebei have lifted production restrictions on steel mills, a Shanghai-based trader said, as skies have cleared after thick smog was suspended in the air for several days this week.

That could lift steel output at a time when traders' appetite has waned.

After a restocking binge that lifted prices of both steel and iron ore, "steel traders have become reluctant to taking more cargoes because end-user demand is not that strong and they also have enough inventory," said the Shanghai trader.

The most-active rebar on the Shanghai Futures Exchange closed down 4.1 percent at 2,984 yuan ($429) a tonne.

The construction steel product touched a 32-month peak last week and has gained 68 percent so far this year, spurred by Beijing's campaign to slim its bloated steel sector and efforts to stimulate its economy.

Iron ore on the Dalian Commodity Exchange slipped 1.8 percent to 548.50 yuan a tonne. But it has surged 170 percent this year having touched a nearly three-year high last week.

Spot iron ore touched a two-year high above $80 a tonne at the same time that futures rallied, bringing this year's annual gain to 75 percent so far.

As futures retreated this week, iron ore for delivery to China's Qingdao port .IO62-CNO=MB slid 3.8 percent to $76.15 a tonne on Thursday, according to Metal Bulletin. The annual gain follows a three-year decline and is on course to be the largest since Metal Bulletin began assessing prices in 2008.

While this year's spectacular rebound in iron ore prices has been a godsend for the world's biggest miners, it has not gone high enough for smaller, less-efficient producers that still have pits shuttered and equipment idle.

Demand for iron ore may remain mostly weak towards the Lunar New Year in late January, said the Shanghai trader. ($1 = 6.9498 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Christian Schmollinger)

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