UPDATE 1-Iron ore steady ahead of holiday, eyes worst quarter ever

* China steel futures have worst quarter in 2 years
* Iron ore eyeing first monthly gain in six
* Top market China on holiday Oct 1-5

(Updates rebar price, adds monthly milestone for iron ore)
By Manolo Serapio Jr
SINGAPORE, Sept 28 (Reuters) - Spot iron ore prices steadied
on Friday in limited activity as China winds down ahead of a
week-long holiday next week, although the raw material is headed
for its worst quarter ever as China's slowdown slashed demand.
Shanghai steel futures edged up, tracking other commodities
and equities amid optimism over economic reforms unveiled by
debt-hit Spain and for China to take more steps to boost its
slowing economy.
Some traders expect iron ore prices to rise after the Oct.
1-5 National Day break, with Chinese steel mills likely to
return to the spot market to replenish stockpiles, although
further gains hinge on a recovery in steel prices.
The most-traded rebar contract for January delivery on the
Shanghai Futures Exchange closed up 0.8 percent at
3,597 yuan ($570) a tonne.
Weaker demand in China, the world's biggest steel consumer
and producer, has weighed on prices of both steel and iron ore
over the last few months, with Shanghai rebar futures falling 10
percent by the end of the September quarter, their steepest loss
since April-June 2010.
Benchmark iron ore with 62 percent iron content
.IO62-CNI=SI was flat at $104.20 a tonne on Thursday,
according to data provider Steel Index. For September, iron ore
is up nearly 17 percent, after five straight months of declines.
But with the price down more than 22 percent so far for the
September quarter, it would be the steepest quarterly drop for
iron ore since Steel Index began compiling data in 2008.
Destocking of iron ore in August, or Chinese steel mills
running down their inventory, cut mills' purchases by about 100
million tonnes in terms of annualised demand for the steelmaking
raw material, said Graeme Train, commodity analyst at Macquarie.
"The result then is that as soon as you stop the destocking,
as soon as you stop sourcing from stockpiles and go back to the
market, buying activity increases and the prices go up. There
was very little actual restocking activity but just an end to
destocking," Train said at an industry conference in China's
coastal city of Dalian.
"The market is now looking understocked. There are a lot of
potential buyers on the sidelines, but at the moment uncertainty
is prevailing and no one is willing to take the risk."
But some traders say there is a chance iron ore prices could
bounce back after China's Golden Week holiday.
"Most people believe prices will increase after the holiday
because, given the long break, some mills would need to go back
to the market and purchase. I'm seeing a $5 increase in prices
after the holiday," said an iron ore trader in the port city of
Rizhao in China's eastern Shandong province.
Expectations that Beijing may announce more measures to
stimulate a slowing economy after the week-long break should
also support prices, he said.
China's approval of 1 trillion yuan in infrastructure
projects this month helped iron ore and Shanghai rebar prices
recover from three-year lows, although the upward momentum has
since waned.

Shanghai rebar futures and iron ore indexes at 0718 GMT

Contract Last Change Pct Change
SHFE REBAR JAN3 3597 +29.00 +0.81
PLATTS 62 PCT INDEX 106 +0.00 +0.00
THE STEEL INDEX 62 PCT INDEX 104.2 +0.00 +0.00
METAL BULLETIN INDEX 106.59 +0.00 +0.00

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

($1=6.3025 Chinese yuan)

(Additional reporting by David Stanway in DALIAN; Editing by
Clarence Fernandez)
(manolo.serapio@thomsonreuters.com; +65 6870 3884; Reuters
Messaging: manolo.serapio.reuters.com@reuters.net)