* Iron ore price drop follows rally earlier in week
* Steel production curbs reducing use of raw materials
By Manolo Serapio Jr
MANILA, Dec 20 (Reuters) - Chinese iron ore futures dropped nearly 1 percent on Wednesday as steel prices hit a two-week low, with production curbs cutting demand for the steelmaking raw material.
China has ordered industrial plants, including steel factories, across 28 cities to reduce production during winter as part of its campaign to fight pollution.
“Because of the environmental programme and the factory shutdowns, the use of iron ore is reduced and stocks at the ports are rising,” said an iron ore trader in China’s port city of Rizhao.
The most-traded iron ore contract for May delivery on the Dalian Commodity Exchange was down 0.9 percent at 528 yuan ($80) a tonne by 0317 GMT, after rising as much as 8 percent in the past two days.
Stockpiles of imported iron ore at China’s major ports climbed to 143.57 million tonnes on Dec. 15, the highest since at least 2004, according to SteelHome consultancy. SH-TOT-IRONINV
The surge in iron ore futures earlier this week had fueled a similar rally in spot prices, with the benchmark rate hitting a three-month peak of $74.15 a tonne on Monday.
But the spot price for 62-percent grade iron ore for delivery to China’s Qingdao port .IO62-CNO=MB eased to $73.93 on Tuesday, according to Metal Bulletin.
“Even if the price drops to lower levels, I don’t think it’s the right time to buy right now,” said the Rizhao-based trader.
The iron ore price drop followed a decline in steel futures.
The most-active rebar on the Shanghai Futures Exchange fell as far as 3,761 yuan per tonne, its weakest level since Dec. 7, and was last down 0.3 percent at 3,812 yuan.
Coke declined 1 percent to 2,110.50 yuan a tonne and coking coal slipped 0.1 percent to 1,372 yuan.
$1 = 6.5974 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Joseph Radford