* Has lost nearly 5 pct so far this week
* Shanghai steel futures languish near record low (Adds Fitch comments, updates prices)
By Manolo Serapio Jr
MANILA, Nov 20 (Reuters) - Iron ore is on course to end the week with its biggest drop in five weeks, trading just above a multi-year low and likely to fall further with no near-term recovery seen in China's gloomy steel market.
Shanghai steel futures held near a record low on Friday and Dalian iron ore struggled to scale higher after deep losses this week.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI dropped 1.5 percent to $45.10 a tonne on Thursday, data from The Steel Index (TSI) showed.
That was just a dollar above July's low which was the weakest level ever on TSI records since it began compiling data in 2008.
Based on annual pricing that preceded the current spot-based system, July's $44.10 was the lowest since 2005, according to data compiled by Goldman Sachs (N:GS).
"I think it's possible we could see prices below $40 at least temporarily," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
"Once you get down below $40 you're going to escalate the pain for some of the high cost producers."
Top, low-cost global miners such as Vale VALE5.SA and Rio Tinto (L:RIO) RIO.AX have not wavered in expanding iron ore output, causing more high-cost supply to exit the market.
China's demand for the raw material looks set to weaken as steel demand by the world's top consumer continues to shrink this year after falling for the first time in more than three decades last year.
"For the big low-cost producers it's not really a rational response for them to be cutting production and (giving up) market share to higher cost producers," said Spooner.
The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange SRBcv1 touched a session low of 1,693 yuan ($265) a tonne and closed down 0.8 percent at 1,695 yuan. The contract touched a record low of 1,692 yuan on Thursday.
Fitch Ratings expects 75-85 million tonnes of China's steel capacity to be shut down over the next five years, offsetting new capacity of around 16 million tonnes to be added in 2016 and 2017.
"This will result in capacity peaking in 2016," Fitch said in a report on Thursday.
On the Dalian Commodity Exchange, January iron ore DCIOcv1 gained 0.8 percent to end at 333.50 yuan a tonne after hitting a 4-1/2-month low of 326.50 yuan in the previous session.
Rebar and iron ore prices at 0706 GMT
Contract
Last
Change Pct Change SHFE REBAR MAY6
1695
-14.00
-0.82 DALIAN IRON ORE DCE DCIO JAN6
333.5
+2.50
+0.76 SGX IRON ORE FUTURES JAN
42.11
+0.36
+0.86 THE STEEL INDEX 62 PCT INDEX
45.1
-0.70
-1.53 METAL BULLETIN INDEX
45.44
-0.91
-1.96
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.3813 Chinese yuan)