SINGAPORE – Iron-ore sagged to its lowest level since July, hammered by sliding steel prices in top consumer China where mills are either seeking deeper discounts on spot ore cargoes or staying away from the market in anticipation of further price declines.

Shanghai rebar futures sank to a fresh record low on Tuesday, tracking steep losses in equities amid renewed worries
over tighter credit and a sharp drop in the yuan, piling more pressure on spot iron ore prices. Dalian iron-ore futures touched a contract low.

Spot iron-ore, China's top import commodity by volume, has fallen nearly 11%this year, potentially cutting profit margins of global miners Vale, Rio Tinto and BHP Billiton, which consider the raw material their biggest business.

The price of copper, another commodity of which China is the top consumer, has dropped by a smaller 4% this year.

In its drive to cut costs, BHP said it will indefinitely suspend production at its Yarrie mine in Western Australia, part
of its smallest iron-ore operations.

Iron-ore for immediate delivery to China slid 2% to $119.90/t on Monday, its lowest since July 2, according to data provider Steel Index.

Weaker steel prices, lending curbs, plentiful supply of iron-ore in the spot market and huge stockpiles at home have combined to drag down prices, said an iron-ore trader in China's eastern Shandong province who sees the price falling further to either $115 or $110.

"Before, when we offer cargoes at 800 yuan per tonne, buyers ask for a discount of 10-15 yuan. Now that's become 30-40 yuan," he said, adding his company has held onto 300 000 t in inventory for two months now amid a scarcity of good offers from buyers.

"It's a tragedy for traders like us."

Vale sold a cargo of 64.22-percent grade Brazilian Carajas iron ore fines at $127/t at a tender on Monday, down more
than $4 from the sale of a similar grade last week, traders said.

Chinese steel prices fell for a fifth day running on Tuesday after steep losses in the prior session on fears banks are
restricting credit to property-related sectors such as steel, cement and construction.

The most-active May rebar contract on the Shanghai Futures Exchange touched a low of 3 295 yuan a tonne, the lowest for a most-traded contract since the bourse introduced the steel product in March 2009. It closed down 0.8% at 3 308 yuan.

China's key stock index tumbled 2.6% in its biggest single-day loss since July. China's spot yuan fell below the official midpoint rate for the first time since September 2012 as economists and traders suspected the central bank had intervened to add volatility to the currency in preparation for reform.     

Also exerting sustained pressure on steel prices in China is the excess capacity of its steel sector as the country's legion of producers compete in the world's top market, often at the expense of their profit margins.

Overcapacity in China's steel sector is so severe that it is "probably beyond our imagination", Li Xinchuang, executive vice secretary-general of the China Iron and Steel Association, told an industry conference in Beijing.

At the Dalian Commodity Exchange, iron ore for delivery in May dropped 1.3% to settle at 817 yuan a tonne,
also marking a fifth day of decline, after touching a contract low of 812 yuan.