* Steel rebar futures drop for first session in six
* Coking coal rallies, up over 2 pct
* Short-term outlook remains firm
* Healthy steel demand and strong coking coal lift sentiment
SHANGHAI, Oct 18 (Reuters) - Chinese steel futures fell on Tuesday for the first time in six sessions as traders were concerned that modest gains in demand did not support the recent rally in prices.
Steel rebar futures had climbed 8 percent from Oct. 10 until Monday’s session, supported by steady demand and expensive steelmaking raw materials in the world’s top producer of steel.
However, investor interest has cooled as physical demand does not appear as strong enough to justify the rally. Rebar transactions during September were only 5 percent higher than in August for this year, according to Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen. He added that September demand was up 10 percent from the previous month during previous periods of high demand as construction increases with the end of summer.
However, this are still expectations that the steel market will remain firm in the short term as an extreme shortage of coking coal and coke has increased the cost of raw materials.
“The severe shortage of coking coal and coke has forced a few mills far away from coal production bases to cut production, and others will not raise output either due to raw materials shortage and losses,” said Zhao.
“The whole market is watching the shortage of coal and coke which should support steel prices in short term. However, steel demand sets to weaken from mid-November and steel mills might cut output further, which could reduce appetite for coal.”
The most active rebar futures on the Shanghai Futures Exchange slipped 0.6 percent to 2,413 yuan ($362) a tonne.
Iron ore futures on the Dalian Commodity Exchange dropped 1.4 percent to 434.50 yuan a tonne by midday.
Dalian coking coal futures surged 2.2 percent to 1,156.50 yuan a tonne and coke edged up 0.4 percent to 1,479.50 yuan a tonne.
Iron ore for delivery to China’s Tianjin port .IO62-CNI=SI rose 1.8 percent to $57.80 a tonne on Monday, its largest gain since Oct. 10, according to data from The Steel Index. ($1 = 6.6685 Chinese yuan renminbi) (Reporting by Ruby Lian; Editing by Christian Schmollinger)