China iron ore slips on rising inventories; steel supported by cuts

* China iron ore port stocks highest since at least 2004

* Most port stocks is low- to medium-grade ore - traders

* China aims to cut steel capacity by 50 mln T this year

MANILA, March 6 (Reuters) - Iron ore futures in China fell more than 1 percent on Monday as inventories at Chinese ports surged to the highest in at least 13 years, although Beijing’s campaign to slash overcapacity in its steel sector is expected to support steel prices.

Stockpiles of imported iron ore at major Chinese ports reached 130.05 million tonnes as of Friday, Steelhome reported, the most since 2004 when the consultancy began tracking the data.

The stockpiles have been rising continuously this year, though traders say bulk of them are low to medium-grade material and the availability of high-grade iron ore remains limited.

Most Chinese mills are opting for higher grade iron ore to boost productivity in order to push out more steel as prices remain high.

“We heard some clients are trying to look for PB or Newman fines from ports but it seems the availability of these high- grade cargoes is rather limited,” said a Shanghai-based iron ore trader, referring to types of high-quality Australian iron ore.

The most-traded iron ore future on the Dalian Commodity Exchange was down 1.3 percent at 669.50 yuan ($97) a tonne by midday.

Weaker futures could pull down spot iron ore prices on Monday after they dropped 1.1 percent to $91.32 a tonne .IO62-CNO=MB on Friday, based on the latest available data from Metal Bulletin.

ANZ analysts say there are “concerns over rising inventories.”

“However, with Chinese authorities setting a target of 50 million tonnes of steel capacity closures in 2017, Chinese domestic steel and iron ore prices are likely to be well supported this week,” the analysts said in a note.

China’s top economic planner said on Sunday it will reduce steel production capacity by 50 million tonnes and coal output by more than 150 million tonnes this year as authorities strengthen efforts to tackle pollution and curb excess supply.

On Monday, China said it will continue to reduce surplus steel capacity next year.

The most-active rebar on the Shanghai Futures Exchange was down 0.8 percent at 3,471 yuan a tonne, but above Friday’s one-week low of 3,440 yuan.

$1 = 6.8943 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Christian Schmollinger