Spot iron ore prices dropped to their lowest in more than a week, reflecting slower buying interest in top consumer China amid a cautious outlook on steel demand and ahead of public holidays later this week.
Iron ore prices have been dropping alongside Chinese steel this month on indications steel demand in the world's biggest market was not picking up pace during what is usually a brisk consumption period.
Chinese steel demand peaks in September and October on increased construction activity, and expectations of stronger consumption were high amid signs of a stabilising Chinese economy.
But inventories of five major steel products in China held by traders were unchanged at 13.5 million tonnes as of Sept. 13 after 25 consecutive weeks of decline, based on data compiled by Bank of America-Merrill Lynch.
Stockpiles of rebar, a steel product used in construction which account for the bulk of the inventories, were also unchanged at 5.7 million tonnes as of Sept. 13 from the previous week, according to the data.
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange touched a session low of 3,636 yuan ($590) a tonne on Tuesday, near Monday's trough of 3,628 yuan, the weakest in more than six weeks.
Shanghai rebar was down 0.2 percent at 3,643 yuan by the midday break, and has lost around 3 percent so far in September after three straight months of gains. Tuesday marked a sixth straight session of decline for rebar, its longest such downturn since March.
The weakness in the steel market has curbed appetite among Chinese mills for iron ore.
"Mills don't have any strong interest to take cargo at the moment given that prices are on the decline. I think they would prefer to wait until after the holidays," said a Shanghai-based iron ore trader.
Chinese markets are shut on Thursday and Friday for the Mid-Autumn Festival.
Ore with 62 percent iron content, the industry benchmark, dropped 0.3 percent to $134.10 a tonne on Monday, the lowest since Sept. 6, based on the latest data available from compiler Steel Index.
The price of iron ore, the biggest revenue earner for global miners Vale and Rio Tinto , has fallen 2.6 percent so far in September, also following three monthly gains.
Mills may return to the spot market to restock on iron ore from next week, ahead of the week-long National Day break in October, the Shanghai trader said.
"But before then, we will probably see the price go down to $130," he said.
Shanghai rebar futures and iron ore indexes at 0405 GMT
Contract Last Change Pct Change
SHFE REBAR JAN4 3643 -6.00 -0.16
THE STEEL INDEX 62 PCT INDEX 134.1 -0.40 -0.30
METAL BULLETIN INDEX 133.52 -2.92 -2.14
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day