SINGAPORE: Iron ore eased from near three-month highs as softer steel prices trimmed buying interest among Chinese mills after replenishing inventories this month.
The price of iron ore, China's top commodity import by volume, has dropped 17 percent from this year's peak as a slower economy curbed demand for the raw material used to make steel.
An onslaught of fresh global supply, from late 2013, from miners rushing in to meet Chinese demand before it peaks and tapers off could fuel years of decline in iron ore prices.
Benchmark 62-percent grade iron ore <.IO62-CNI=SI> dropped 0.7 percent to $131.70 a tonne on Monday, according to data provider Steel Index.
That followed four consecutive weeks of gains that pushed iron ore to $132.60 on Friday, its loftiest since April 30, as firmer steel prices encouraged mills to restock.
Having risen 13 percent so far in July, iron ore is still on track for its best monthly performance since gaining more than 25 percent in December.
"The market sentiment has weakened given recent declines in steel prices. I think mills will be waiting for a while before purchasing material again," said an iron ore trader in Shanghai.
Global miner Rio Tinto is selling another cargo of 61-percent grade Australian Pilbara iron ore fines at a tender closing later on Tuesday after selling a shipment of the same grade at $130.88 a tonne on Monday, down sharply from last week's $133.68, traders said.
The most-traded rebar contract for January delivery on the Shanghai Futures Exchange was steady at 3,642 yuan ($590) a tonne by the midday break on Tuesday. It touched a low of 3,627 yuan on Monday, its weakest in almost three weeks.
Spot Chinese steel prices also turned weaker after a restocking-driven rally lost some momentum, traders said.
China's steel sector will continue to operate under tough conditions given tighter credit access and Beijing's crackdown on overcapacity "while there will be no turnaround in property investment or no stimulus support", said Helen Lau, senior mining analyst at UOB-Kay Hian Securities, who kept an "underweight" rating on Chinese steel stocks.
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