* China July steel exports second highest on record
* Citi sees China 2015 net steel exports at 100 mln tonnes
By Manolo Serapio Jr
MANILA, Aug 10 (Reuters) - Shanghai rebar futures dropped to two-week lows on Monday, reflecting weak demand in China that pushed producers to sell more overseas, with shipments last month the second highest on record.
China exported 9.73 million tonnes of steel products in July, up 21 percent from a year ago, and near the record high of 10.29 million tonnes posted in January, according to government data released on Saturday.
Shrinking domestic demand amid a slowing economy has fueled brisk steel exports from the country, with some Chinese steelmakers said to be selling output abroad at a loss, sparking anger from producers elsewhere.
Taking steel imports into account, China's net steel exports rose to 8.68 million tonnes in July, up 27 percent from a year ago. Citigroup (NYSE:C) said it now expects steel net exports to rise to 100 million tonnes this year from 79 million tonnes in 2014.
"Strong Chinese steel exports are fundamentally being driven by dramatic overcapacity in China's steel sector," Citi analysts wrote in a report.
"A primary driver of this overcapacity has been the weakness in domestic steel demand," they said, adding that domestic demand continued to decline in July after contracting by 8.9 percent year-on-year in the second quarter.
The most-traded rebar for January delivery on the Shanghai Futures Exchange SRBcv1 was down 0.8 percent at 2,044 yuan ($330) a tonne by midday, after hitting a low of 2,040 yuan. The price of the construction steel product hit a record low of 1,951 yuan in July.
Along with weaker steel futures, the January iron ore contract on the Dalian Commodity Exchange slipped 0.8 percent to 368 yuan a tonne.
China's iron ore imports rose 15 percent from June to 86.1 million tonnes in July, when spot prices fell to a decade-low of $44.10 a tonne before recovering to above $56 last week.
The higher imports reflect reduced production of iron ore in China as prices tumbled, said Argonaut Securities mining analyst Helen Lau.
"The import increase from June does not support iron ore prices because the reduced production in China is mainly from marginal producers. The global iron ore market remains oversupplied," Lau said in a note to clients.
($1 = 6.2087 Chinese yuan)