Chinese steel futures fell sharply yesterday to the lowest level in over a month, as traders took cues from market talk that Beijing may tolerate slower economic growth amid rising debt and an uncertain global environment.

Citing a source, Bloomberg last Friday reported that Chinese President Xi Jinping told the Communist Party's financial and economic leading group that the world's second- largest economy could tolerate growth lower than 6.5 per cent.

The most active rebar contract for May delivery on the Shanghai Futures Exchange fell 5.8 per cent in early trade yesterday.

It closed 3 per cent down at 2,927 yuan a tonne, the lowest level since Nov 22.

Rebar is short for reinforcing bar, a type of steel product.

"The government re-emphasised keeping the real estate market at a steady and healthy pace of development. The market didn't take it as a signal of curbing property prices until the central government implied that the country will tolerate a gross domestic product below 6.5 per cent," said Sinosteel Futures analyst Bai Yilin.

The prospect of slower economic growth added to worries about already high inventories of construction steel, which has grown for five weeks in a row, traders said.

Its price touched a 32-month peak last week and has gained more than 60 per cent so far this year, spurred by Beijing's campaign to slim its bloated steel sector and efforts to stimulate its economy.

Iron ore on the Dalian Commodity Exchange slipped to 545.5 yuan a tonne, the lowest in more than a month. But it has still surged 170 per cent this year, touching a nearly three-year high last week.

The market will also be keenly following a new law passed in China on Sunday that will levy specific environmental protection taxes on industry for the first time from 2018, as part of a renewed focus on fighting pollution.

The new tax levy was expected to increase the cost of steel production and eliminate unqualified small mills, but its real impact may depend on its implementation, said Sinosteel Futures.