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China steel falls as mills ramp up output ahead of winter crackdown

* Steel, iron ore set for biggest weekly drop in months

* Market worries about weaker demand in autumn

By Muyu Xu and Josephine Mason

BEIJING, Sept 15 (Reuters) – China’s steel prices fell more than 2 percent on Friday and were on track for their biggest weekly loss since early June on growing concerns about a glut as mills in the world’s top producer rush to churn out metal ahead of a winter crackdown.

Iron ore futures were also under heavy pressure as investors placed bearish bets on the steelmaking ingredient in anticipation of slower demand due to enforced steel output cuts to curb pollution during the colder months.

“The market is under pressure of oversupply as steel mills continue ramping up production despite of Beijing’s curb on output,” said analysts from Orient Futures in a note.

Data on Thursday showed China produced in August a record tonnage of steel for a second straight month, as mills sought to cash in on fat margins ahead of the winter.

Some analysts reckon mills are producing as much as possible ahead of government-enforced closures to curb smog that blankets the north of the country during the cold winter months.

Falling for a second session, the most-active rebar futures on the Shanghai Futures Exchange were down 1.96 percent at 3,804 yuan ($580.75) a tonne by 0327 GMT. Earlier, they hit 3,792 yuan, their lowest in two weeks.

Inventories of steel products are growing, too. According to data on Thursday tracked by Mysteel consultancy, inventories of rebar used in construction rose by 118,000 tonnes to 4.72 million tonnes, the highest since early May.

September and October are seen as peak season for steel demand as construction activities typically resume after a months-long summer lull.

But worries are growing that demand may slow ahead of Congress in October due to environmental and safety checks.

The most-traded iron ore futures on the Dalian Commodity Exchange fell 3.05 percent to 508 yuan a tonne, hitting its lowest since end-July. Iron ore is on course for its steepest weekly drop in more than four months.

Other steelmaking raw materials on the Dalian Exchange also dropped on Friday. The January coking coal contract lost 4.3 percent to 1,357 yuan a tonne, and coke futures fell 3.25 percent to 2,319 yuan a tonne.

$1 = 6.5502 Chinese yuan Reporting by Muyu Xu and Josephine Mason; Editing by Tom Hogue