Shanghai rebar futures fell for a second day on Monday, tracking losses in equities after a survey pointed to slower Chinese factory activity, although potentially more output cuts arising from a stricter anti-pollution campaign helped stem the decline.
The flash Markit/HSBC Purchasing Managers' Index for China fell to a three-month low of 50.5 in December as reduced output offset a pickup in new orders, in line with other recent data pointing to a resilient but slowing economy.
The weak PMI sent Chinese equities to four-week lows and weighed on Shanghai-traded commodities.
The most-traded rebar for May delivery on the Shanghai Futures Exchange closed half a percent lower at 3,671 yuan ($600) a tonne. It had shed 1.2 percent on Friday.
Helping limit losses in rebar were concerns of more production cuts.
Some steel mills in China's top producing Hebei province were ordered to shut some of their facilities last week to limit power use as Beijing steps ups efforts to address worsening air pollution.
The closures in Wu'an city may extend through Dec. 25, a trader in Shanghai said. Hebei produces about a quarter of China's output, which reached a record 716.5 million tonnes last year. Wu'an city alone has an annual crude steel capacity of 40-50 million tonnes.
"We think the government has taken an important first step towards solving the overcapacity problem and improving environmental standards, though follow up measures will be required," said Ivan Szpakowski, analyst at Citigroup.
Szpakowski said while production will resume in provinces where output is curtailed, such as Hebei and Jiangsu, "we expect such environmental driven short-term closures to occur more frequently going forward".
Construction-used rebar climbed to 3,745 yuan last week, its highest since late September, on news of the production cuts in Hebei.
The output cuts have blurred the outlook for China's iron ore demand. China buys about two-thirds of the world's one-billion-tonne plus seaborne iron ore every year, powered by its steel mills that make at least 2 million tonnes of crude steel a day.
Benchmark 62 percent grade iron ore for immediate delivery to China .IO62-CNI=SI fell 1.4 percent to $136 a tonne on Friday, according to data compiler Steel Index.
That was the biggest daily drop for the price since Sept. 27, with iron ore ending last week down 2.3 percent, its steepest such loss since early September.
Bids for spot cargoes were scarce on Monday, with most mills relatively well stocked after boosting inventories in recent weeks that lifted spot prices to a 3-1/2-month high near $140 in early December.
At the Dalian Commodity Exchange, iron ore for May delivery settled up 0.7 percent at 918 yuan a tonne, after sliding more than 2 percent on Friday.