October 10, 2017 / 7:45 AM / 8 months ago

UPDATE 1-Shanghai steel sags on profit-taking, raw materials extend losses

* Rebar climbed as much as 5.3 pct on Monday

* Looming China steel production cuts in winter seen aiding prices

* Dalian iron ore, coking coal hit three-month lows (Updates prices)

By Manolo Serapio Jr

MANILA, Oct 10 (Reuters) - Shanghai rebar steel futures slid nearly 5 percent on Tuesday as investors locked in gains after prices rallied in the previous session while steelmaking raw materials extended losses on worries over plentiful supply.

Shanghai rebar futures climbed as much as 5.3 percent on Monday, when Chinese markets reopened after a week-long break, on expectations of tighter supply during winter as local governments implement China’s orders to curb production by as much as 50 percent to limit smog.

The most-active rebar on the Shanghai Futures Exchange closed down 4.8 percent at 3,553 yuan ($539) a tonne, just off the day’s trough of 3,552 yuan.

The outlook for steel prices remains relatively firm “given the winter production cuts plus overall reasonable demand levels,” said Ric Spooner, chief market analyst, CMC Markets.

“But I would not be surprised to see prices dip below the lows that we have seen in late September and that just reflects the size of the rally that we’ve seen in rebar.”

Rebar futures have risen 40 percent this year, largely driven by China’s efforts to curb oversupply.

Chinese authorities have ordered heavily air-polluting industries including steel to reduce output and cut emissions during the four-month winter heating period that usually begins in mid-November.

The output cuts in some cities have already begun. Handan in the top steelmaking province of Hebei has told its steel mills to halve output from Oct. 1 until March.

The steel production cuts are expected to curb demand for raw materials - iron ore and coking coal.

Australia’s Fortescue Metals Group, the world’s No. 4 iron ore producer, expects iron ore demand from Handan, Tangshan and other parts of Hebei, as well as Tianjin, to drop, Chief Executive Officer Neville Power told Reuters late last month.

The most-traded iron ore on the Dalian Commodity Exchange slipped 2 percent to 440 yuan per tonne, adding to Monday’s 2.1 percent decline. Earlier in the session, the contract fell as far as 434.50 yuan, its weakest since July 6.

Coking coal closed down 2.9 percent at 1,077.50 yuan a tonne, after touching a three-month low of 1,071 yuan. Coke tumbled 5.6 percent to 1,805.50 yuan.

Despite weaker futures, spot iron ore prices held up. Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB rose 0.7 percent to $62.67 a tonne on Monday, according to Metal Bulletin.

The firm iron ore spot price shows “demand for physical cargoes remained strong,” ANZ analysts said, adding that the opposing price direction for spot and futures prices suggest “divergent views in the market are emerging.”

$1 = 6.5955 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Sherry Jacob-Phillips

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