Spot iron ore prices drifted to a more than two-week low, reflecting slower buying interest from Chinese mills as they wait for steel demand in the world's top consumer to strengthen.
Shanghai steel futures hit fresh 7-1/2-month lows on Wednesday, before regaining some ground, on worries slower economic growth would curb demand for the building material that is usually most sought in the seasonally strong second quarter.
"Our steel clients are telling us that the market is improving, but very slowly. So most of them tend to buy iron ore in very small volumes of 5,000 to 10,000 tonnes," said an iron ore trader in China's eastern Shandong province.
Iron ore with 62-percent iron content, the industry benchmark, fell 1.2 percent to $136.40 a tonne on Tuesday, the lowest since April 5, according to data provider Steel Index.
That puts iron ore within striking distance of its 2013 low of $132.90 touched in mid-March, and the price could slip towards that level as China's economic outlook darkens.
China's manufacturing sector grew at a slower pace in April from March, based on a private-sector survey released on Tuesday, pointing to more headwinds for the economy which grew by a less than forecast 7.7 percent in January-March.
"We are not buying right now. We still have some cargoes from last month, about 120,000 tonnes, that we're trying to sell and we'll most likely sell it at a loss," according to the Shandong-based trader who said the cargoes were bought at between $139-$141 a tonne.
Weaker steel prices have curbed mills' buying interest for iron ore as most prefer to limit inventories of the raw material while stockpiles of steel products remain high.
Most Chinese steel producers, aiming to keep their market share in a fragmented sector, continue to ramp up output. Given weak demand, that is lifting steel inventories which some analysts estimate were near record highs at above 21 million tonnes in mid-April.
The most actively traded rebar contract for October delivery on the Shanghai Futures exchange was off 0.3 percent at 3,607 yuan ($580) a tonne by the midday break. It fell to as low as 3,578 yuan earlier, its weakest since Sept. 10.
But the relatively low inventory of iron ore among Chinese mills may also be supportive for prices.