Chinese iron ore and coke futures dive on steel demand concerns

SHANGHAI, Dec 7 (Reuters) – Chinese coke and iron ore futures fell further in afternoon trading on Thursday, amid growing concerns that steel demand in the world's top producer will decline as winter kicks in.

Iron ore on the Dalian Commodity Exchange had tumbled 7.5 percent to 494.5 yuan ($74.77) a tonne by close, and coke had hit a downward limit of 8 percent to 2,008 yuan a tonne.

Coal dived 7.4 percent to 1,258 yuan a tonne.

"Spot steel prices hit a multi-year high (on Tuesday), and traders are clearing their stocks to lock in profit amid worries that the turning point may come soon as demand will drop off seasonally," said an analyst with a trading firm in Shanghai.

"The physical market starts weakening today."

Stronger-than-expected demand from the construction sector due to a warm start to the winter has boosted spot steel prices and margins for Chinese steel mills since November, further tightening supplies as mills slashed output.

Chinese steelmakers in 28 cities have been ordered to cut production between mid-November and mid-March amid a green push by the government, a move that expected to extend supply shortages for some steel products.

"Steel prices though should continue to remain well supported on shortage concerns, helping drive steel margins higher," Vivek Dhar, an analyst with Commonwealth Bank of Australia, said in a note.

The continued steel production cutbacks are expected to hurt demand for key steelmaking raw materials including iron ore and coke, pushing down prices by a larger extent.

Dhar expected iron ore demand in northern China to weaken with the cuts to steel output and other industrial activity to last until mid-March.

The most active rebar on the Shanghai Futures Exchange had dropped 3.2 percent to 3,828 yuan a tonne.

Iron ore for delivery to China's Qingdao port <.IO62-CNO=MB> dropped 3.3 percent to $69.7 a tonne on Wednesday, according to Metal Bulletin. ($1 = 6.6133 Chinese yuan)

(Reporting by Ruby Lian and Josephine Mason; Editing by Joseph Radford and Subhranshu Sahu)