* Mill have to cut output due to heavy losses -analyst
* Tangshan orders mills to upgrade, more closures seen
* Rebar still at lowest levels since contract launch (Adds Tangshan anti-pollution policy, updates prices)
SHANGHAI, July 20 (Reuters) - Chinese rebar futures rebounded on Monday to a one-week high on expectations that steel mills in the world's top producer would slash output further due to low prices and tougher environmental measures in Tangshan, the top steel-making city in China.
The most traded January rebar contract on the Shanghai Futures Exchange SRBcv1 surged more than 3 percent to a session high of 2,123 yuan ($341.89) a tonne, its loftiest since July 10. It closed 3.3 percent higher at 2,112 yuan.
But the contract is trading at some of the lowest levels since its launch on the Shanghai exchange in March 2009.
"The high production rates can not last due to heavy losses, and more mills have started to curtail output," said Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen.
Tangshan will punish firms if they fail to meet tough new pollution standards over the next three months, according to new industry guidelines, a move that could force closures and help ease a severe capacity glut. ID:nL3N1001FO
Chinese spot steel prices are at their lowest in more than 20 years as the slowing economy cuts into demand for a range of commodities including iron ore and steel, threatening the survival of small steel mills in the country. ID:nL3N0ZN2MU
Total steel output for the first half of this year declined 1.3 percent to 409.97 million tonnes compared with the same period a year ago. ID:nL3N0ZP3QU
The gains in rebar have driven up iron ore futures to hit upside limit. The most active January contract on the Dalian Commodity Exchange DCIOcv1 rose to 364.5 yuan a tonne by close, its highest since July 9.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI were at $50 a tonne on Thursday, down 0.2 percent from the previous day. Asia's spot iron ore benchmark was not assessed by The Steel Index on Friday due to a holiday.
Rebar and iron ore prices at 0720 GMT
Contract
Last
Change Pct Change
SHFE REBAR JAN6
2112
+68.00
+3.33
DALIAN IRON ORE DCE DCIO JAN6
364.5
+14.00
+3.99
METAL BULLETIN INDEX
50.66
+0.11
+0.22
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.2096 Chinese yuan)