By Manolo Serapio Jr

SINGAPORE, Feb 18 (Reuters) - Shanghai steel futures fell on

Monday to their lowest since late January as investors trimmed

expectations for an immediate pickup in Chinese steel demand on

the first trading day after a week-long Lunar New Year break.

Weaker steel prices usually translate to slower demand for

iron ore, but some Chinese mills may restock on the raw material

after the long holiday which should support prices. Traders are

watching a tender for Australian iron ore fines for any

indication of market direction.

The most traded rebar contract for October delivery on the

Shanghai Futures Exchange hit a session low of 4,192

yuan ($670) a tonne, its weakest since Jan. 29. It was down 1.7

percent at 4,202 yuan by the midday break.

Rebar, used in construction, rose to nine-month highs the

week before China went on holiday on expectations steel demand

in the world's biggest consumer and producer would turn brisk

after the break.

'We expect steel consumption to pick up from March onwards

when we will see more construction activities,' said a

Shanghai-based iron ore trader. Most migrant workers in China

are only returning to work next week, the trader added.

The decline in Shanghai rebar prices weighed on sentiment

towards iron ore swaps, which gained last week in

anticipation physical prices will ounce back.

The second-quarter contract traded at $144.50 a tonne, down

from Friday's settlement of $146, while the third-quarter

contract slipped to $138.50 from $139.21, brokers said. The

swaps are cleared by top global clearer Singapore Exchange.

Some traders are bracing for firmer prices in the spot

market, with several Australian and Ukrainian cargoes on tender.

Rio Tinto is offering 165,000 tonnes of

61.5-percent grade Australian Pilbara iron ore fines at a tender

closing later on Monday.

'The Pilbara fines will be the bellwether for what's going

to happen in the market,' said a Singapore trader.

Some in China expect steel mills to replenish iron ore

stockpiles that may have dropped during the holidays, that may

push prices higher.

'There could be some restocking after the holiday. Mills may

do it with caution, but some traders could be aggressive,' said

another trader in Shanghai who sees the Pilbara fines being sold

at $155-$156 per tonne from a previous sale of around $153.

Rio is also offering a cargo of 64.5-percent grade PMC iron

ore concentrate, while Ukrainian miner Metinvest is offering

five cargoes of concentrates with grades ranging from 65 and 67

percent, traders said.

Benchmark 62-percent grade iron ore was

unchanged at $155.10 a tonne last week, according to data

provider Steel Index.

Shanghai rebar futures and iron ore indexes at 0407 GMT

Contract Last Change Pct Change

SHFE REBAR OCT3 4202 -73.00 -1.71

THE STEEL INDEX 62 PCT INDEX 155.1 +0.00 +0.00

METAL BULLETIN INDEX 155.89 +0.00 +0.00

Rebar in yuan/tonne

Index in dollars/tonne, show close for the previous trading day

($1 = 6.2325 Chinese yuan)

(Reporting by Manolo Serapio Jr.; Editing by Tom Hogue)

Keywords: MARKETS IRONORE/

(manolo.serapio@thomsonreuters.com)(+65 6870 3884)(Reuters Messaging: manolo.serapio.thomsonreuters.com@reuters.net)

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