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Chinese rebar hits new low, iron ore dips on oversupply worries

* Market unimpressed by latest mini-stimulus in northeast

* Iron ore, steel inch down; traders hope for September revival

* Illegal steel production still adding to oversupply (Updates Shanghai rebar, Dalian futures prices)

By David Stanway

BEIJING, Aug 20 (Reuters) - Chinese rebar futures hit a record low while iron ore prices continued to fall on Wednesday, with traders still worried by oversupply and unimpressed by the latest government efforts to stimulate construction demand in northeastern regions.

The most-traded rebar contract on the Shanghai Futures Exchange fell 0.76 percent over the day to end at a record low of 2,990 yuan ($487) per tonne. It has fallen about 19 percent since the beginning of the year.

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The most active iron ore contract for September delivery on the Dalian Commodity Exchange finished at 646 yuan a tonne, down 0.9 percent.

"I'm just observing the market to see where I can make a profit. If there are price differences between the Dalian Commodity Exchange and the ports, for example, we can sometimes make money, but right now there isn't much of an opportunity," said a trader based in Beijing.

"Right now, the price for iron ore is going down and down, and I personally believe we need to wait until September or October before it goes up again," he said.

On Tuesday, China issued detailed new policy measures aimed at speeding up infrastructure investment in its struggling northeastern rust belt.

While new road and rail projects in the region could stimulate steel demand, the policy wasn't enough to breathe life into the stagnant iron ore market.

Benchmark 62 percent grade iron ore for immediate delivery into China slipped 0.3 percent on Tuesday to end at $93 per tonne, its lowest level in two months and 33 percent lower than at the same time last year.

"A price recovery in iron ore is being held back further by mills that are selling long-term, fixed-price cargoes into the spot market, adding to excess supply," Australia and New Zealand Bank said in a note on Wednesday.

Domestic supplies also remain resilient, with utilisation rates at major Chinese iron ore mines rising in August, according to research published this week by Chinese brokerage GF Securities.

Melinda Moore, an analyst with Standard Bank, said the market was "still absorbing over-exuberant steel mill output in the first 10 days of August".

There were signs that China was getting to grips with steel oversupply in July, when plant overhauls and even closures helped drag average daily steel output down to its lowest level of the year, according to official data.

However, the daily rate remained 3 percent higher than the average in the whole of last year, and China Iron and Steel Association data on Monday showed it had rebounded in August.

Analysts said the scale of the production increase in the first 10 days of the month had taken the market by surprise and suggested that China's efforts to shut down old capacity were not having as big an effect as anticipated.

China's industry ministry has set a September deadline for the closure of nearly 47 million tonnes of steel and iron smelting capacity, but the shutdowns can quickly be offset by larger mills seeking to expand market share. Despite a state crackdown, illegal production also remains a factor.

"Illegal production capacity remains too strong, and as soon as capacity is shut down, illegal capacity comes and replaces it," according to a research note from online steel trading platform GTXH.com.

Rebar and iron ore prices at 0705 GMT Contract Last Change Pct Change SHFE REBAR JAN5 2990 -23.00 -0.76 DALIAN IRON ORE DCE DCIO JAN5 646 -6.00 -0.92 THE STEEL INDEX 62 PCT INDEX 93 -0.30 -0.32 METAL BULLETIN INDEX 93.03 -0.32 -0.34 Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day

(1 US dollar = 6.1425 Chinese yuan) (Editing by Alan Raybould and Richard Pullin)