* Steel mills suffer heavy losses on weak demand
* Mills expected to cut output ahead, pressuring iron ore
SHANGHAI, Sept 28 (Reuters) - Chinese iron ore futures fell on Monday as steel mills in the world's top consumer of the raw material held back buying on expectation of deepening weakness in steel demand.
Some steel mills are posting losses as high as 600 yuan ($94.21) per tonne and facing a worsening liquidity crunch as the cooling economy continued to hurt demand for industrial commodities, industry sources said.
The most active iron ore futures on the Dalian Commodity Exchange DCIOcv1 dropped 2 percent to 373.5 yuan a tonne by 0303 GMT.
"There is high expectation that more steel mills will cut production over next few months as a result of tightening liquidity and shrinking demand," said Xia Junyan, an analyst with Everbright Futures in Shanghai.
"Mills don't want to restock much of iron ore."
China's total crude steel output fell 2 percent to 543.02 million tonnes for January-August from a year ago as steel consumption has already entered the peak zone last year. MTL/CHINA7
Rebar futures on the Shanghai Futures Exchange SRBcv1 lost 1.7 percent to a session low of 1,866 yuan per tonne, the second lowest on record. It hit a record low of 1,839 yuan a tonne on Sept. 7.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI dropped 1.1 percent to $56.2 a tonne last Friday. It ended the week down by 1.6 percent.
Rebar and iron ore prices at 0303 GMT
Contract
Last
Change Pct Change
SHFE REBAR JAN6
1868
-30.00
-1.58
DALIAN IRON ORE DCE DCIO JAN6
373.5
-7.50
-1.97
THE STEEL INDEX 62 PCT INDEX
56.2
-0.60
-1.06
METAL BULLETIN INDEX
56.98
+1.68
+3.04
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3690 Chinese yuan renminbi)