Reuters reported that spot iron ore prices dropped to their lowest in more than two weeks and were headed for their steepest weekly loss since May, as buying by top consumer China lost steam after recent restocking.

Shanghai steel futures tracked equities higher but were set to end the week flat, constrained by a hazy outlook for Chinese demand for the rest of the 2013.

Iron ore with 62% iron content .IO62-CNI=SI, the industry benchmark, slipped 0.2% to USD 129.70 per tonne on Thursday, its weakest since July 16, based on the latest available data published by compiler Steel Index.

The price of iron ore, the biggest revenue earner for top miners Vale and Rio Tinto, is down 2.2% so far for the week, the steepest decline since late May and following a four week rally that lifted prices to near three-month highs above USD 132.

An iron ore trader in Hong Kong said that "I think we're seeing a healthy correction. Iron ore has become a bit expensive so there's some slowdown in spot demand. But I'm still getting inquiries from both mills and traders looking to buy iron ore, so they are just waiting for prices to drop further."

At current steel and iron ore prices, mills are probably at least breaking even, the trader said, as opposed to recent losses. The most traded rebar contract for January delivery on the Shanghai Futures Exchange rose 0.6% to CNY 3,670 per tonne by the midday break. It hit a three week low of CNY 3,613 on Wednesday.

A Shanghai based trader said that despite recent losses, iron ore prices should find immediate support at USD 128 per tonne with high grade spot cargoes still relatively limited and Chinese steel production likely to remain high as mills prepare for the peak consumption period in September and October. Iron ore swaps were firm on Friday, reflecting market expectations that physical prices would bounce back.