* Spot iron ore down for 6th straight day
* Dalian futures fall 2 pct, Shanghai rebar hits record low
* Citi sees iron ore at $40 or below in Q1 2016 (Adds Citi comment, updates futures prices)
By Manolo Serapio Jr
MANILA, Oct 21 (Reuters) - Spot iron ore fell to its lowest level since July, pressured by weak steel demand in top consumer China that has dragged Shanghai rebar futures to a record low on Wednesday and forced steel producers to limit inventories of the raw material.
Iron ore has fallen nearly 27 percent this year, on track for a third straight annual decline, as low-cost suppliers boost production at a time when Chinese steel demand is waning.
BHP Billiton BHP.AX BLT.L , the world's No. 3 iron ore miner, lifted September quarter output by 7 percent and stuck to its full-year target to raise production by 6 percent to 247 million tonnes. urn:newsml:reuters.com:*:nL3N12K5L1
Benchmark 62-percent grade iron ore for delivery to China's Tianjin port .IO62-CNI=SI fell 0.8 percent to $52.10 a tonne on Tuesday, according to The Steel Index.
That was its lowest since July 27, stretching its losing run to a sixth consecutive day.
"I think we'll see some fairly twitchy moves and it could get worse over the next three to six months, but after that it's probably going to try to find some traction just above $50," said Vishnu Varathan, senior economist at Mizuho Bank in Singapore.
Varathan sees a recovery in iron ore prices towards the third quarter of 2016 as most of China's infrastructure projects get underway, but said there might be a lag between the capacity of these projects to absorb the growing low-cost supply.
Potentially adding to the glut, Indian miner Vedanta Ltd VDAN.NS expects to export more than 5.5 million tonnes of iron ore from the state of Goa, most of which should find its way to China. urn:newsml:reuters.com:*:nL3N12K2JC
Near-term, the weakness in iron ore is likely to continue with no recovery in sight for steel prices amid a slowing Chinese economy and chronic overcapacity that has spurred many producers to sell more steel overseas and keep their iron ore inventories at a minimum.
"We think it will move down to around $50 by the end of this quarter and see a more significant shakeout in 2016," Citi analyst Ivan Szpakowski told reporters in Sydney, predicting iron ore will fall to $40 or below by the first quarter.
Rebar, a steel product used in construction, fell as far as 1,788 yuan ($282) a tonne on the Shanghai Futures Exchange SRBcv1 on Wednesday. It was the lowest for a most-traded contract since the exchange launched rebar futures in 2009. It closed flat at 1,804 yuan.
On the Dalian Commodity Exchange, January iron ore DCIOcv1 ended down 1.9 percent at 365 yuan a tonne, suggesting further weakness in spot prices.
Rebar and iron ore prices at 0722 GMT
Contract
Last
Change Pct Change SHFE REBAR JAN6
1804
+0.00
+0.00 DALIAN IRON ORE DCE DCIO JAN6
365
-7.00
-1.88 SGX IRON ORE FUTURES NOV
49.0
-0.81
-1.63 THE STEEL INDEX 62 PCT INDEX
52.1
-0.40
-0.76 METAL BULLETIN INDEX
52.93
-0.37
-0.69
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.3466 Chinese yuan)