* Steel mills suffer heavy losses on weak demand
* Mills expected to cut output ahead, pressuring iron ore (Adds Citi comment, updates close prices)
SHANGHAI, Sept 28 (Reuters) - Chinese iron ore futures dropped to a one-month low 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 slumped over 3 percent to 366.5 yuan a tonne, its lowest since Aug. 27. It ended 3.4 percent lower at 368 yuan a tonne.
"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
However, Citi expected China's steel output to remain relatively steady over the next two months, but to fall significantly in the first quarter of 2016.
"We expect a combination of such cutbacks and continued supply growth to push prices below $40 a tonne in the first half of 2016," Citi said in a research note on Monday.
Rebar futures on the Shanghai Futures Exchange SRBcv1 touched a session low of 1,855 yuan per tonne, the second lowest on record, and closed at 2.1 percent lower at 1,859 yuan a tonne. 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 0706 GMT
Contract
Last
Change Pct Change
SHFE REBAR JAN6
1859
-39.00
-2.05
DALIAN IRON ORE DCE DCIO JAN6
368
-13.00
-3.41
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)