SHANGHAI: China's steel futures dropped on Monday, ending three sessions of gains after surveys showed the country's manufacturing activity shrank for the first time in over two years.
Slowing steel demand during winter in the world's largest producer also dragged on prices.
"As end-user purchasing activity remains thin, steel traders are still holding back restocking and some are expecting prices to fall further, so it is not certain that prices have already bottomed out," said Du Hui, an analyst with Qilu Securities in Shanghai.
The most-traded May rebar contract on the Shanghai Futures Exchange was down 0.4 percent at 2,489 yuan ($398). The futures price has already fallen 3.7 percent so far this year.
A government survey showed China's factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January, and firms saw more gloom ahead.
"We don't see any good signs for demand recovery this month, so steel prices are likely to stay at currently low levels," said Xu Huimin, an analyst with Huatai Great Wall Futures in Shanghai.
A slowing economy and stagnant demand growth for commodities have already piled stress on Chinese steel mills, with some reporting losses for last year.
Shandong Iron & Steel Co Ltd said it expected a net loss in 2014 of about 1.35 billion yuan ($217 million) versus a net profit of 158.3 million yuan the year before.
Weaker steel prices have forced Chinese steel mills to scale back production, curbing appetite for iron ore with spot prices slumping to their lowest since May 2009.
Benchmark 62 percent grade iron ore for immediate delivery to China fell 1 percent to $61.70 a tonne on Friday, posting its biggest monthly fall since May 2013, according to data compiled by the Steel Index.
Iron ore futures for May delivery on the Dalian Commodity Exchange had slipped 0.4 percent to 472 yuan by the midday break.
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