* China steel inventory falls for 6th week, hits 2-yr low -Mysteel
* Prices remain under pressure from increasing output -analysts
* Northern China has started to enforce winter production cuts (Updates closing prices)
BEIJING, Nov 16 (Reuters) - Chinese steel rebar erased all early gains to trade lower on Friday, as concerns over an increasing supply offset a firm demand outlook that was supported by falling stockpiles.
Steel product inventory at Chinese traders dropped for a sixth straight week in the week to Nov. 16, down 284,700 tonnes from the previous week at 8.61 million tonnes, according to data compiled by Mysteel consultancy. That marked the lowest level since late November 2016.
Stocks of construction steel rebar declined 5.6 percent to 3.17 million tonnes, the data showed, while hot-rolled coil dwindled 4.6 percent to 2.14 million tonnes.
“Falling inventory is not enough to bring up market sentiment...Spot trade is becoming lukewarm as investors expect falling prices with mounting production at steel mills,” analysts from Sinosteel Futures said in a note.
Benchmark Shanghai rebar prices closed 0.4 percent lower to 3,884 yuan ($559.57) a tonne when market closed at 0700GMT. It rose as much as 1.3 percent during early trading session.
The hot-rolled coil contract rose 0.6 percent to 3,624 yuan.
The weekly utilisation rate at steel mills across the country continued to increase this week, climbing by 0.14 percentage points to 67.82 percent as of Friday, Mysteel data showed, with some big furnaces resuming operations after regular maintenance.
Cities in northern China, including steelmaking hubs Tangshan and Handan in Hebei province, have started to implement four-month-long winter production restrictions from Thursday.
Analysts estimated that around 74 percent of steel mills in Tangshan had crimped their operations, with more expected to follow the regulations in the coming days.
Prices of steelmaking raw ingredients were buoyed by winter production restrictions and output ramping at steel mills.
The most-traded Dalian coking coal futures, for January delivery, climbed 1.8 percent to 1,385 yuan a tonne, while coke prices advanced as much as 3.4 percent to 2,432 yuan.
The utilisation rate at coke plants has fallen by 1.6 percentage points to 77.02 percent this week from a week ago, Mysteel data showed, dampened by production restrictions in top coal mining province Shanxi.
Dalian iron ore futures rose 2.1 percent to 521 yuan a tonne. ($1 = 6.9410 Chinese yuan) (Reporting by Muyu Xu and Dominique Patton Editing by Joseph Radford and Rashmi Aich)