* Steel demand in China remains weak amid slowing economy
* ANZ estimates steel mills losing 200 yuan/T
* Some mills expected to restock iron ore over next few days
SHANGHAI, Sept 21 (Reuters) - Chinese iron ore futures dropped on Monday as weak steel demand in the world's top consumer and a fall in overall commodity futures drag down prices for the raw material.
Chinese steel mills are holding back purchases of iron ore as many are suffering losses due to falling steel prices and shrinking demand.
Iron ore for January delivery on the Dalian Commodity Exchange slipped 0.4 percent to 390 yuan ($61.24) a tonne by the midday break.
Steel demand in China typically picks up from September along with construction work after the summer lull. But a slowing economy has hit industrial activity, with steel consumption continuing to shrink this year after falling in 2014 for the first time since 1981.
In the short term, though, some Chinese steel mills are expected to pick up iron ore purchases to restock the steelmaking ingredient ahead of the week-long National Day holiday starting at the beginning of October.
"Steel mills are expected to restock the raw material over next few days before the national holiday and this will have some support for prices," said Xia Junyan, an analyst with Everbright Futures in Shanghai.
January rebar on the Shanghai Futures Exchange dropped 1.6 percent to 1,896 yuan a tonne by midday.
Copper prices and other metals slipped on Monday as well, as jitters lingered over the health of the global economy after the U.S. Federal Reserve last week delayed an interest rate rise.
Iron ore for immediate delivery to China's Tianjin port climbed 0.5 percent to $57.10 a tonne on Friday, although it ended last week down 2.4 percent.
Iron ore is receiving some support from mills that are producing steel at a faster pace than consumers are using up their products to save money on operational costs.
"Struggling domestic steel mills are maintaining higher than required output volumes in an aid to minimise marginal costs," ANZ bank said in a research note on Monday.
ANZ estimated that the Chinese steel industry is losing an average of 200 yuan a tonne, a very painful negative profit margin of 8 percent.
Rebar and iron ore prices at 0343 GMT
Contract
Last
Change Pct Change SHFE REBAR JAN6
1896
-30.00
-1.56 DALIAN IRON ORE DCE DCIO JAN6
390
-1.50
-0.38 SGX IRON ORE FUTURES SEP
56.3
+0.05
+0.09 THE STEEL INDEX 62 PCT INDEX
57.1
+0.30
+0.53 METAL BULLETIN INDEX
57.69
+0.32
+0.56
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.3683 Chinese yuan)