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PrintChinese steel and iron ore futures sagged on Thursday, following two days of gains, after a private-sector survey showed factory activity in the country slowed this month.
The Flash Markit/HSBC Purchasing Managers' Index for China dropped to 50.4 in November from 50.9 in October due to weak new export orders and a slower pace of restocking activity.
The preliminary PMI reading suggests the world's No. 2economy could lose some momentum in the fourth quarter which may curb demand for commodities such as steel.
"This is bearish for steel. We do not have high hopes on demand," said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong.
"We spoke to some steel producers yesterday and they said the export situation hasn't improved and their order books for China also have not recovered as much as they had hoped."
A sub-index in the PMI measuring new export orders fell to a three-month low of 49.4 in November from 51.3 in October, reflecting lethargic external demand due to patchy recovery in developed countries.
The most-traded rebar contract for May delivery on the Shanghai Futures Exchange closed down 0.7 percent at 3,612 yuan ($593) a tonne.
At the Dalian Commodity Exchange, iron ore also for delivery in May fell 1.1 percent to 932 yuan a tonne.
In the spot market, iron ore prices remained trapped in narrow ranges with most Chinese mills having recently restocked supplies, although strong steel production is likely to support prices.
Iron ore for immediate delivery in China's Tianjin port .IO62-CNI=SI gained 10 cents to $136.40 a tonne on Wednesday, according to data compiler Steel Index.
Spot prices, down 14 percent from this year's high, have been trading within a band of less than $2 since the start of November.
"We believe the primary reason the price has been less volatile this year is because steel mills are carrying a much lower level of iron ore inventory. As a result, their ability to both destock and restock has been limited," Morgan Stanley said in a report.
Tighter cash flow and balance sheets had helped restrict inventories among Chinese steel mills, said the bank which sees mills carrying 25-35 days of iron ore inventory, on average, going forward.
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