Iron ore has slumped back into a bear market after posting the biggest weekly loss in 16 months amid concern that record demand in China may ease off as mills enact winter output cuts just as data from the top user signals that the economy may be cooling.

Losses have probably been driven by "the realisation that if, as planned, large amounts of steel capacity are taken offline during the winter months, this will mean lower demand for iron ore", Caroline Bain, chief commodities economist at Capital Economics Ltd., said by email.

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"August activity and spending data suggested that the Chinese economy is starting to slow."

Spot ore with 62 per cent content in Qingdao sank 3.8 per cent to $US63.56 a dry metric ton on Friday, taking the week's retreat to 12 per cent, according to Metal Bulletin.

Prices have lost more than 20 per cent since peaking near $US80 in August, meeting the common definition of a bear market. Lower-grade 58 per cent ore, which trades at a discount, has sunk into the $US30s.

Iron ore is in retreat after a tumultuous year that's seen the commodity surge in February and again in June-to-August only for gains to be rolled back.

While Chinese steel output has been running at a record pace, aiding iron ore, policy makers plan to order production cuts over winter to curb pollution.Production cuts

Last week, Australia's central bank predicted weaker iron prices, flagging risks including rising supplies as well as concern that China may be nearing peak steel.

"We expect the price of iron ore to fall further and to average just $US55 a ton in the fourth quarter," Ms Bain said.

Capital Economics placed first in a Bloomberg ranking of iron ore forecasters in the second quarter.

"Much will depend on whether the capacity closures take place on the scale that is planned."

China curbs

There are signs of cutbacks before winter starts.

The steel-making hub of Tangshan city plans to halve output of pellet and sintering plants - both used to make steel - from Monday as part of an "emergency measure" to reduce pollution, the environmental bureau said.

The duration of the cuts will be notified by the municipal government at a later date.

The planned winter cuts could reduce steel output by up to 30 million tons and iron consumption by 50 million, according to Ian Roper, head of Shanghai Metals Market's international division.

'Risky picture'

It makes for a "risky picture" for prices given ore supply is always seasonally stronger in the fourth quarter, he said.

Steel prices in China, which accounts for half of worldwide production, are losing ground after hitting multi-year highs, paring mills' profitability and undercutting iron ore demand.

In Shanghai, futures for reinforcement bar fell 6.6 per cent last week, while the contract for hot-rolled coil dropped 7.4 per cent, the biggest loss since May.

Supply coming

More iron ore supply is on the way. Shipments from the top producers are estimated at 314.9 million tons this quarter, up 5.3 per cent on-year, according to Sanford C. Bernstein & Co, citing vessel-tracking data. Last week, Vale SA said its giant S11D mine would hit 25 per cent of capacity by year-end.

Iron ore futures in Asia sagged again on Monday.

In Singapore, the SGX AsiaClear contract fell as much 2 per cent to $US61.75 a ton, while in China, the most-active price on the Dalian Commodity Exchange lost as much as 1.9 per cent before trading little changed.

• [Editor:Wang Linyan]