(Repeats earlier story for wider readership with no change to text. The opinions expressed here are those of the author, a columnist for Reuters.)
* GRAPHIC: China steel futures vs iron ore futures: https://tmsnrt.rs/2PfEcyv
LAUNCESTON, Australia, Aug 30 (Reuters) - It's been a long time coming but Chinese steel prices are finally showing signs of running out of steam, with futures having dropped for six straight sessions.
The Shanghai Futures Exchange benchmark rebar contract closed at 4,160 yuan ($605) a tonne on Wednesday, having retreated from the seven-year high of 4,418 yuan a tonne, reached on Aug. 22.
The recent declines point to an increasing tug-of-war between still robust margins for steel makers and the likelihood of slowing demand growth in China, which produces about half of the world's steel.
Steel futures gained about 29 percent from the end of last year to their recent peak, as Chinese mills enjoyed some of the strongest profits in years.
Output curbs related to efforts to control pollution and the cutting of older, less efficient capacity, has boosted the industry's fortunes.
Improving profits have allowed steel mills to boost production by employing higher grade iron ore as a feedstock, which has the added benefit of requiring less coking coal per unit of steel produced.
The result has been record output, with China producing a fourth straight monthly high in July of 81.24 million tonnes, according to official statistics.
Year-to-date output to end-July grew 6.3 percent compared with the previous year to 532.85 million tonnes, as profit margins reached around 1,100 yuan a tonne, according to analysts from Huatai Futures.
While it's logical to expect steel mills to maximize production when profit margins are elevated, there is some concern as to where all the steel is going.
The key construction sectors appear to still be enjoying strong activity, but perhaps not enough to justify a 6.3 percent increase in output.
Other steel-consuming sectors, such as appliance and goods manufacturing and car making are in a similar position.
Exports of steel products have been trending lower this year, with shipments of products in the first seven months of the year slipping 13.6 percent to 41.3 million tonnes.
The escalating trade dispute with the United States, and imposition of duties by other countries on Chinese steel means exports are unlikely to return to growth any time soon.
Visible inventories have been largely steady in recent weeks, but are still well down on levels earlier in the year, with data from consultancy SteelHome showing rebar stocks <SH-TOT-RBARINV> at 4.12 million tonnes in the week to Aug. 24, less than half the peak in early March.
With mounting concern about a cooling in the Chinese economy in the second half of the year, the risk is rising that steel's stellar run must be coming to an end.
This should also have a desultory effect on iron ore as well, which has spent the past five months trading in a fairly narrow range.
Ore with a 62 percent iron content, the main benchmark, ended at $65.35 a tonne on Wednesday, according to prices assessed by Argus Media <MT-IO-QIN62=ARG>.
This means the steel-making ingredient has lost about 11.7 percent so far this year, although it should be noted that higher grade ore has performed better.
Argus assessed 65 percent iron ore at $94.40 a tonne on Wednesday, which is up 3 percent so far this year.
Low-grade iron ore has also declined more than the benchmark, with consultancy CuSteel citing 58 percent ore from India <CUS-IF5800-IORE> at a price of 245 yuan ($35.90) a tonne on Wednesday, down 12.5 percent from the end of last year.
The outperformance of higher grade iron ore does confirm that China's steel mills have been using better quality ore to maximize output and lower emissions.
But it is also the case that they have still been importing significant volumes of lower grade ore.
Vessel-tracking data compiled by Thomson Reuters shows that Australia, which supplies mainly 62 percent and lower-grade 58 percent iron ore, has managed to boost its share of China's imports to 67.4 percent for the first eight months of the year, compared with 66.1 percent for the same period in 2017.
In contrast, high-grade suppliers Brazil and South Africa both lost market share, with the South American country dropping to 19.5 percent from 21.2 percent, and South Africa slipping to 3.3 percent from 3.6 percent.
(Editing by Christian Schmollinger)