* Shanghai spot rebar higher than futures
* Expectations steel supply may drop on Beijing-led curbs
By Manolo Serapio Jr
MANILA, Aug 7 (Reuters) - Shanghai rebar futures dropped more than 1 percent on Friday but firmer spot prices suggested Chinese demand could be increasing ahead of curbs that may cut near-term output.
The most traded rebar for January delivery on the Shanghai Futures Exchange SRBcv1 was down 1.3 percent at 2,054 yuan ($330) a tonne by midday after touching a 1-1/2-week low of 2,048 yuan.
But rebar, used in construction, is currently sold in Shanghai at between 2,130 and 2,170 yuan per tonne, according to a trader there.
"Physical steel demand is still firming because supply may fall when Beijing restricts production ahead of the parade," the trader said, referring to the 70th anniversary of the end of World War Two on Sept. 3, when factories will be shut to ensure clean air during a commemoration.
The controls will be imposed from Aug. 20. ID:nL3N10E2WZ
The measures are expected to extend to areas surrounding Beijing, including the top steel-producing province of Hebei and Tianjin, industry sources say, following a similar effort last year ahead of a regional summit in November.
"I think there's some restocking demand ahead of an expected pick-up in construction after summer," said Helen Lau, an analyst at Argonaut Securities in Hong Kong. "Inventory has been quite low."
As of end-July, stocks of steel products held by Chinese traders stood at 11.67 million tonnes, the lowest since mid-February, said Lau.
Firmer steel pricing bodes well for raw material iron ore, which rose to one-month highs this week, recovering from July lows that pulled it to its weakest in a decade.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI was little changed at $56.30 a tonne on Thursday, according to The Steel Index.
The spot benchmark touched $56.40 on Wednesday, its highest since July 1.
Rebar and iron ore prices at 0357 GMT
Contract
Last
Change Pct Change SHFE REBAR JAN6
2054
-27.00
-1.30 DALIAN IRON ORE DCE DCIO JAN6
373
-1.50
-0.40 SGX IRON ORE FUTURES SEP
52.1
-0.45
-0.86 THE STEEL INDEX 62 PCT INDEX
56.3
-0.10
-0.18 METAL BULLETIN INDEX
56.4
-0.38
-0.67
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.2087 Chinese yuan)