* Recent steel spike not driven by fundamentals -industry group
* Shanghai rebar has surged more than 40 pct from April
By Manolo Serapio Jr
MANILA, Aug 11 (Reuters) - Chinese steel futures dropped on Friday to pull away from 4-1/2-year highs reached this week, with an industry group warning that market speculators were driving up prices unnecessarily.
Officials from the China Iron and Steel Association (CISA) met with steel producers, brokerages and research consultancies on Wednesday and agreed that the recent price spike was “not driven by market demand or reduced market supply”.
Instead, some organisations were “over-interpreting, or even mis-reading” the effect China’s environmental policies and clampdown on low-quality steel would have on production capacity in the second half of 2017, according to a statement from CISA posted on its official Wechat account.
The most-active rebar on the Shanghai Futures Exchange was down 0.7 percent at 3,942 yuan ($591) a tonne by 0224 GMT, after hitting an intraday peak of 4,016 yuan on Thursday, its strongest level since March 2013.
The construction steel product, which has risen more than 40 percent from April, has gained 6 percent so far this week.
“These warnings serve the purpose ... to cool down markets or to see some consolidation in commodity prices,” Argonaut Securities analyst Helen Lau said in a note.
“We think the government wants to ensure stable development in markets and does not want to see quick boom and bust cycles fuelled by speculation.”
Investors latched on to expectations of steep production cuts by Chinese mills in pushing up prices sharply this week. China has ordered mills to cut production by as much as 50 percent in major producing areas such as Hebei province during winter.
In Hebei, steelmakers are required to comply with state- and province-level emission restrictions by Sept. 1 or they will be shut down, the Hebei Province Environmental Protection Bureau said on Tuesday.
As steel prices retreated, so did iron ore. The most-traded iron ore for January delivery on the Dalian Commodity Exchange eased 0.4 percent to 560 yuan a tonne.
Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB rose 1.6 percent to $76.68 a tonne on Thursday, according to Metal Bulletin, tracking gains in futures that day.
It was the highest level since April 6 for the spot benchmark, which has risen 3.5 percent so far this week, on course for its fifth consecutive weekly increase.
$1 = 6.6750 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Joseph Radford