China iron ore extends rise amid supply concerns; steel prices fall

* Iron ore market faces uncertainty after mine disaster

* Steel prices down ahead of U.S.-China trade talks

MANILA, Jan 29 (Reuters) - China’s iron ore futures extended gains on Tuesday amid expectations of slower production by top producer Vale SA, but steel prices fell on caution ahead of the U.S.-China trade talks this week.

China’s benchmark iron ore contract soared to its highest in 16 months on Monday, after a dam holding mine waste at Vale’s Corrego do Feijao mine collapsed on Friday, burying mining facilities and killing dozens.

The disaster has created uncertainty for China’s iron ore market at a time when demand for supply from the South American country is rising, traders say.

The most traded iron ore on the Dalian Commodity Exchange rose as much as 0.9 percent to 558.5 yuan ($82.69) a tonne.

“Although the mine in question only has a 7.8 million tonne iron ore capacity, the larger issue is whether Vale will be able to navigate a myriad of lawsuits and penalties, not to mention operational restraints that could be imposed on it,” said INTL FCStone commodity consultant Edward Meir.

Vale is the world’s top supplier of low-aluminium iron ore, preferred by Chinese mills for its low impurity level.

Brazil’s government weighed pushing for a management overhaul at Vale on Monday, while prosecutors, politicians and victims’ families called for punishment.

The most-active rebar contract on the Shanghai Futures Exchange fell as much as 1.6 percent to 3,653 yuan a tonne. Hot rolled coil was also down as much as 1.6 percent to 3,561 yuan.

“Our analytics model on the ferrous futures complex is showing an outflow of money on the steel assets as we move into the U.S.-China trade talks that is going to be held this week,” said Darren Toh, a data scientist with Singapore-based steel and iron ore data analytics company Tivlon Technologies.

U.S. Treasury Secretary Steven Mnuchin said on Monday the United States expects significant progress in trade talks in Washington with Chinese Vice Premier Liu He, but the two sides will be tackling “complicated issues”.

“Market participants are de-risking their funds to avoid any swings caused by the noises coming out from the trade talks,” Toh said.

Dalian coking coal fell as much as 2.3 percent to 1,196 yuan a tonne, while coke dropped as much as 2.2 percent to 2,015 yuan. ($1 = 6.7485 Chinese yuan) (Reporting by Enrico dela Cruz; Editing by Gopakumar Warrier)

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