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Shanghai steel falls over 2 pct on slow demand, drags iron ore

* Coking coal pares gains amid weakness in steel futures

* Steel supply growing as seasonal demand disappoints

MANILA, April 6 (Reuters) - Chinese rebar steel futures dropped more than 2 percent on Thursday, pressured by growing supply while seasonal demand in the world’s largest steel consumer appears to be slower than many had expected.

The weakness in steel dragged down prices of steelmaking raw material iron ore. Coking coal, also used to produce steel, fell after earlier matching Wednesday’s four-month high. Coking coal jumped more than 8 percent in the previous session amid worries over tighter supply after Cyclone Debbie slammed into top supplier Australia.

The most-active rebar contract on the Shanghai Futures Exchange was down 2.1 percent at 3,170 yuan ($460) a tonne by the mid-day break.

“Supply tightness has eased and seasonal demand is much slower than expected,” said Richard Lu from CRU consultancy in Beijing.

Steel demand in China typically rises during spring, along with construction activity, after the winter lull.

Chinese traders' stockpiles of rebar, a steel product used in construction, continue to drop although Lu said the decline has eased in recent weeks. The inventory fell 4.5 percent last week to 6.73 million tonnes and has dropped 20 percent since reaching a three-year high in February, according to data tracked by SteelHome consultancy. SH-TOT-RBARINV

Demand is currently slowing down and output of long products, including rebar, is rising, said Lu.

Activity in China’s steel industry expanded at a slower pace in March, an industry survey showed last week. The Purchasing Managers’ Index for the steel sector fell to 50.6 in March from 51.4 in February.

Iron ore on the Dalian Commodity Exchange slipped 0.9 percent to 560 yuan per tonne.

Dalian coking coal was little changed at 1,353.50 yuan per tonne after earlier hitting 1,383 yuan, which was Wednesday’s peak and the highest since Nov. 30.

Coking coal jumped 8.5 percent on Wednesday in its biggest single-day spike since November amid fears of a weeks-long stoppage in supply from Australia.

Top coking coal shipper BHP Billiton and Glencore are among five miners who declared force majeure on shipments from Australia’s Queensland state after landslides caused by Debbie hit a critical mountain pass on the railway connecting the world’s single biggest source of coking coal to ports.

Iron ore for delivery to China's Qingdao port .IO62-CNO=MB climbed 2.6 percent to $81.54 a tonne on Wednesday, according to Metal Bulletin.

$1 = 6.8985 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Christian Schmollinger