Benchmark 62 percent-grade iron ore .IO62-CNI=SI fell $1.30 from day ago to $114.90 per tonne on Wednesday, its lowest point since Dec. 29, 2009, according to data from The Steel Index.
   
The most-traded January rebar contract on the Shanghai Futures Exchange had inched up 0.44 percent to 3,683 yuan ($580) per tonne by the midday break, within sight of a record low of 3,631 yuan struck on Friday.
   
China's annual consumer inflation fell to a 30-month low in July, suggesting that the central bank has scope to ease monetary policy further after rate cuts in June and July to keep the economy on track to meet an official 2012 growth target of 7.5 percent.
   
A further deceleration in the producer price index, which fell 2.9 percent from a year earlier, also underscores sluggish demand and overcapacity in some industries.
   
Most analysts expect Beijing to cut rates again in the third quarter, but traders said the government needed to take more action to boost infrastructure investment in order to lift steel demand, which has suffered in part because of a crackdown on the property market that has curbed construction of residential projects.
   
"The problem is there is no demand for steel. What steel mills and other end users really need right now are orders. Without a pickup in physical demand, the supply glut will worsen even if they were to get more credit from banks," said a trader with a large state-owned trading company in Beijing.
   
Industrial output and fixed-asset investment data, due for release later on Thursday, is expected to show signs of a pick-up in activity, indicating that the economy is starting to stabilise after sliding for six straight quarters.
   
Still, any economic improvement will be fragile as the euro zone debt crisis and a sluggish U.S. recovery keep global growth at a low ebb, the main factor that pushed China's new export orders in July into their steepest fall in eight months.
   
Chinese steel prices have already fallen 11 percent since the start of the year and are down 16 percent since this year's high of 4,405 yuan struck in April. The slump in prices has also pushed many steel mills into the red.
   
Market participants see few prospects for steel prices and iron ore demand to stage a convincing rebound in the second half of the year, since demand will only have a small window for a pickup in September-October before slipping into a lull again through the winter months.
   
"As long as Beijing doesn't ease its controls on the property sector, we may not be able to see a significant rebound in steel demand," said Qiu Yuecheng, an analyst with XiBen New Line Co Ltd, a steel products trading platform in Shanghai.
   
"Some investors are seeing a floor price of 3,500 yuan, but I expect prices to fall to as low as 3,300 yuan before posting a sizeable rebound towards the end of the first quarter," the trader said.
 
Shanghai rebar futures and iron ore indexes at 0330 GMT
                                                                                            
  Contract                          Last    Change  Pct Change                              
  SHANGHAI REBAR*                   3683     16.00        0.44
  PLATTS 62 PCT INDEX                117     -0.75       -0.64
  THE STEEL INDEX 62 PCT INDEX     114.9     -1.30       -1.12
  METAL BULLETIN INDEX            118.92      0.20        0.17
                                                                                            
  *In yuan/tonne                                                                            
  #Index in dollars/tonne, show close for the previous trading day
 ($1 = 6.3615 Chinese yuan)