* Dalian iron ore benchmark falls as much as 3.4%
* Trading limits raised for Sept iron ore contract
* Spot 62% iron ore at 5-yr high of $111/T -SteelHome
* Iron ore inventory at Chinese ports falls further
By Enrico Dela Cruz
MANILA, June 17 (Reuters) - Dalian iron ore futures fell in early trade on Monday, pulling back from a record-peak hit last week as worries about supply eased, although prices were supported by a bullish outlook for short-term demand in China.
The most-actively traded iron ore contract on the Dalian Commodity Exchange (DCE), for September, dropped as much as 3.4% to 760.6 yuan ($109.84) a tonne, before selling pressure eased. It was down 1.7% as of 0221 GMT.
The benchmark surged to a record 797.5 yuan on Friday and posted its biggest weekly gain since February, buoyed by worries about a supply crunch and expectations of brisk demand amid China’s renewed drive to support its slowing economy.
Following the sustained rally, the DCE said on Friday that it would raise trading limits and margins for the September iron ore contract, effective from June 18.
Trading limits will increase to 8% from the current 6%, while trading margins will rise to 10% from 8%.
Brokerage Marex Spectron expects iron ore supply conditions to ease at Chinese ports, although the latest data from SteelHome consultancy SH-TOT-IRONINV showed the port inventory shrank further to 118.7 million tonnes as of last week.
That is the lowest in about 2-1/2 years.
“Our indicators continue to point towards a steady increase in forward supply, as well as higher arrivals into China,” said Hui Heng Tan, a Marex Spectron research analyst .
Marex Spectron is “bullish” on short-term iron ore demand in China.
While profit-margins for steel mills have declined amid the high cost of iron ore, the brokerage said “mills are running at record levels”, keeping demand intact.
Helen Lau, a metals and mining analyst at Argonaut Securities said “steel profitability is still high enough for steel companies to (continue) production expansion, hence demand for iron ore will be supported”.
Spot ore with 62% iron content for delivery to China SH-CCN-IRNOR62 was at $111 a tonne as of Friday, a five-year high, according to SteelHome consultancy.
“Supply of iron ore will gradually recover, but we can worry about it later,” Lau said.
Other steelmaking raw materials were also lower, with coking coal falling as much as 1% to 1,381.50 yuan a tonne. Coke slipped as much as 2.5% to 2,073 yuan.
Steel futures fell as well, with the most-actively traded construction steel rebar, for delivery in October, on the Shanghai Futures Exchange down as much as 2.1% to 3,704 yuan a tonne.
Hot rolled coil, steel used in cars and home appliances, fell as much as 1.8% to 3,576 yuan a tonne.
($1 = 6.9247 yuan)
Reporting by Enrico dela Cruz; Editing by Joseph Radford