* China shifts from blanket industrial production cuts in winter
* Traders waiting for lower prices before restocking -analyst
* Spot steel trade volume at lowest in 3 months
* Profit-margins at mills narrow to 350 yuan a tonne -analyst (Updates closing prices)
BEIJING, Nov 21 (Reuters) - Rebar construction steel prices plunged more than 5 percent in China on Wednesday amid expectations of robust supply and leaner demand, with steelmaking ingredients touching multi-month lows.
Chinese mills are still churning out steel products at record levels despite output restrictions that have started in the country’s north, while worries over demand persist as the nation’s economy slows.
“Investors were disappointed when they found out that the implementation of output curbs will not be as strict as they had expected,” said Zhuo Guiqiu, an analyst at Jinrui Futures.
China has shifted away from implementing blanket curbs in industrial production this winter, instead allowing regions and companies some flexibility in setting cuts as part of a drive to clean the country’s notoriously toxic air.
For example, China’s top steelmaking city of Tangshan from Nov. 15 started to enforce production restrictions of 30-35 percent, down sharply from 42 percent last winter.
Meanwhile, traders in China have been holding off from restocking some steel products as they expect prices to drop further.
“Traders are reluctant to replenish their stocks at this point as they expect prices will fall further amid high output and weak demand,” said Zhuo.
Daily steel trading volumes across China on Tuesday dropped to their lowest level in nearly three months at 131,600 tonnes, according to data tracked by Mysteel consultancy.
Benchmark rebar futures on the Shanghai Futures Exchange slumped as much as 5.6 percent in early trade on Wednesday, their biggest loss since March 23. They settled 2 percent lower at 3,724 yuan ($536.44) a tonne when market closed at 0700 GMT.
Jiangsu Shagang Group, the biggest privately-owned steel producer in China, on Wednesday said that it had lowered physical rebar prices for late-November delivery by 150-180 yuan a tonne.
“There is still space for steel prices to dip further, at least 100 yuan from current level,” said a Shandong-based trader. He declined to be identified as he was not authorised to talk to media.
Falling steel prices have narrowed profit-margins at rebar makers to around 350 yuan a tonne this week from 890 yuan a tonne in late October, while hot-rolled coil makers are hardly seeing any profits from production, said Zhuo at Jinrui Futures.
That has driven down prices for steelmaking ingredients, with the trader in Shandong saying coke plants in the major coal-mining hub of Shanxi have been forced to reduce coke prices by 100 yuan a tonne this week.
The most-active coke contract on the Dalian Commodity Exchange dropped 1.6 percent to 2,289 yuan a tonne, while coking coal recouped session’s earlier losses and closed up 0.7 percent to 1,378.5.
Dalian iron ore prices rose 1.3 percent to 526.5 yuan a tonne, after earlier dropping as much as 4.1 percent to 498.5 yuan.
Iron ore bounced back after media reports of a merger between China’s top steelmaking company, China Baowu Steel Group, and Ansteel Group. ($1 = 6.9420 Chinese yuan renminbi) (Reporting by Muyu Xu and Dominique Patton Editing by Joseph Radford, Amrutha Gayathri)