Chinese iron ore futures fell 1 percent on Monday to their lowest since the contracts were launched in October as weaker steel prices curbed demand for the raw material.
Spot iron ore dropped to its cheapest in more than five months on Friday and could ease further below $130 a tonne this week as cautious traders keep their hands off fresh cargoes, with demand seen unlikely to perk up until after the Chinese New Year.
The most-active iron ore contract on the Dalian Commodity Exchange, for May delivery, hit a session low of 868 yuan ($140) a tonne, its weakest since it was introduced on Oct. 18. It closed down 0.7 percent at 871 yuan.
"We're not buying iron ore for now. It would be difficult to sell a cargo at the moment so we'll wait until after the Chinese New Year and see how the market goes," said a Shanghai-based iron ore trader.
"Most mills are cautious about the market for steel products and secondly, they have problems with tighter liquidity."
In past years, Chinese mills have usually stocked up on iron ore ahead of the week-long Lunar New Year break, which starts on Jan. 31 this year. But a softer steel market had curbed buying interest this year.
The most-traded May rebar contract on the Shanghai Futures Exchange declined to as low as 3,449 yuan a tonne, not far off Friday's trough of 3,441 yuan - the lowest since the contracts were launched in 2009.
Rebar, a steel product used in construction, settled 0.3 percent lower at 3,462 yuan, falling in six out of seven sessions.
Slower Chinese demand has weighed on spot iron ore prices, adding to last year's more than 7 percent drop.
Iron ore for immediate delivery to China .IO62-CNI=SI slipped 0.2 percent to $130.70 a tonne on Friday, its lowest since Aug. 5, according to data compiled by Steel Index.
"Current prices have encouraged some restocking activity from smaller mills but we suspect prices may fall towards $125/tonne in the short term, as weaker Chinese construction activity and high at-port inventories weigh on prices," Australia and New Zealand Banking Group said in a note.
China, which buys over two-thirds of the world's seaborne iron ore, purchased 73.38 million tonnes of the commodity in December, down almost 6 percent from a record high in November, customs data showed on Friday.
Weaker steel prices had prompted some mills to reduce production, putting China's average daily crude steel output at 1.961 million tonnes in late December, the first time the pace fell below 2 million tonnes since last February.
A tender for 170,000 tonnes of 61 percent grade Australian Pilbara iron ore fines closing later on Monday may help offer some direction to the market, traders said.
A cargo of the same grade was last sold via tender at $130.60 a tonne before the Christmas holiday, said the Shanghai trader who expects the latest offer to fetch a lower price.