Shanghai steel ticks down on oversupply concerns

* Destocking of steel products at Chinese mills slows down

* Utilisation rates at mills hit one-year-high - Mysteel

* Iron ore prices expected to stay high for at least next 12 months - Jefferies

BEIJING, May 31 (Reuters) - Chinese steel rebar contract edged down on Friday and was set to log its weakest weekly performance since mid-February, as investors fretted about oversupply amid slowing destocking process at traders and increasing output at mills.

Inventory of steel products at Chinese traders dropped just 188,000 tonnes this week from prior week to 11.03 million tonnes, with rebar stocks falling to 5.52 million tonnes and hot-rolled coil rising to 2.05 million tonnes, data compiled by Mysteel consultancy showed.

Summer is typically a low season for steel demand in China, as high temperature and continuous rainfall across the country crimp construction activities.

Utilisation rates at steel mills, however, continued to rise this week, reaching their highest level in a year at 71.69%, Mysteel data showed.

“Steel consumption is gradually waning but is still hovering at a relatively high level... However, market generally believes steel prices will not see a sharp fall as long as demand from downstream sectors remains strong,” said analysts from CITIC Futures in a note in Mandarin.

Benchmark Shanghai rebar prices dipped 0.9% to 3,771 yuan ($545.60) a tonne as of 0244 GMT. It has given up nearly 3% this week and is on track its biggest weekly lost in 15 weeks.

Hot-rolled coil futures dropped 0.6 % to 3,636 yuan.

Prices of other steel-making raw materials mostly fell alongside steel products.

The most-active iron ore contract for September delivery lost 0.3% to 736.5 yuan a tonne, with investors turning much more defensive as a bull.

Analysts from Jefferies expect iron ore prices to stay high for at least the next 12 months due to the ongoing effect of supply shocks in the market.

Inventory of imported iron ore at Chinese ports has fallen to 127.8 million tonnes, its lowest level since February 2017.

“While steel mills eye on high-quality ore to improve production efficiency, low-grade ore is also favoured as mills need to make balance on costs, which drives general iron ore stocks at ports falling rapidly,” said Niki Wang, senior analyst at S&P Global Platts.

Dalian coking coal edged up 0.2% to 1,404.5 yuan a tonne on Friday, while coke futures fell 1.1% to 2,203 yuan.

$1 = 6.9116 Chinese yuan renminbi Reporting by Muyu Xu and Shivani Singh; Editing by Rashmi Aich