Iron ore extends pullback as rising supply offsets demand optimism

* Dalian iron ore slumps 2.5%, SGX iron ore slips 1.1%

* Iron ore shipments to China from Australia, Brazil up

* Iron ore prices seen supported at $100/tonne - analysts

MANILA, Sept 16 (Reuters) - Iron ore futures dropped for a second consecutive session on Wednesday on easing concerns about supply tightness, with the sell-off fuelled further by the steel margin squeeze in China.

Iron ore on China’s Dalian Commodity Exchange fell 2.5% to 818 yuan ($120.80) a tonne in early trade, while the steelmaking ingredient dipped 1.1% to $122.53 a tonne on the Singapore Exchange.

Iron ore demand in China, which accounts for more than half of the world’s steel output, has rebounded strongly since April as mills ramped up steel output, encouraged by the government’s infrastructure-led economic stimulus measures.

That, along with signs of a recovery in steel demand elsewhere and supply constraints, lifted iron ore prices by more than 50% so far this year.

While Tuesday’s August industrial output data showed China’s recovery from the COVID-19 pandemic shock gathering pace, ANZ senior commodity strategist Daniel Hynes said, “signs of rising iron ore supply quelled the enthusiasm of stronger demand.”

Vessels carrying 14.64 million tonnes of iron ore arrived at major Chinese ports last week, up 540,000 tonnes from the previous week, metals data provider SMM reported.

Port stockpiles jumped last week to the highest level since April, and may rise further as latest industry data showed increased shipments from Australia and Brazil. SH-TOT-IRONINVORE-AUCN-TOTORE-BRCN-TOT

“Iron ore prices have likely topped in the near term, as falling blast furnace margins have started to incentivise steel mills to shift away from mainstream fines into blended fines, lumps and pellets,” Citi analysts said in a note.

Some analysts, including those at Citi, expect prices to remain supported, however, at $100 a tonne for the rest of 2020.

Construction steel rebar on the Shanghai Futures Exchange fell 1.1%, hot-rolled coil lost 0.9% and stainless steel slumped 3.1%.

Coking coal slipped 0.2% and coke dipped 1.9%. (Reporting by Enrico dela Cruz, additional reporting by Min Zhang in Beijing; Editing by Subhranshu Sahu)