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Shanghai steel futures fall as U.S.-China trade tensions mount

* Trump says to hike U.S. tariffs on Chinese goods this week

* Tangshan city to enforce stricter production curbs

BEIJING, May 6 (Reuters) - China’s steel futures dropped on Monday, the first trading day after a four-day national holiday, hit by worries over the outlook for trade after U.S. President Donald Trump said he would hike U.S. tariffs on $200 billion worth of Chinese goods.

That came as the two countries had been working to reach a deal to end a months-long tit-for-tat trade war following rounds of negotiations among senior officials in the two governments.

Media reported that China is considering cancelling the trade talks with the United States this week after Trump’s threat.

Benchmark construction rebar futures on the Shanghai Futures Exchange had fallen 1.1 percent to 3,769 yuan ($555.38) a tonne by 0205 GMT.

Hot-rolled coil prices dropped 1.3 percent to 3,724 yuan a tonne.

However, tightened environmental measures in the top steel-making city of Tangshan stoked concerns about supply, offering some support to prices.

Tangshan’s government last week ordered steel mills in seven districts to halve their sintering and shaft furnace operations in May to improve air quality.

“According to our estimation, around 29.2 percent of blast furnaces in Tangshan will be shut in the second quarter, which would help ease output increases of steel products,” analysts from Jinrui Futures wrote in a note.

Steel mills in Tangshan were enforcing an average of around 20 percent production restrictions in April.

The heightened production restrictions are expected to drive up profit margins at steel mills, with prices for raw materials climbing in their wake, analysts said.

The most-active iron ore contract on the Dalian Commodity Exchange was little changed at 635 yuan a tonne.

Coking coal prices rose 0.8 percent to 1,362.5 yuan a tonne, while coke edged up 0.5 percent to 2,049 yuan.

$1 = 6.7863 Chinese yuan renminbi Reporting by Muyu Xu and Dominique Patton; Editing by Joseph Radford

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