* Citi sees iron ore at average $61 in 2017, $50 in $2018
* Says China iron ore port stocks to peak in H2 2017
By Manolo Serapio Jr
MANILA, June 19 (Reuters) - Chinese iron ore futures ticked higher on Monday along with steel prices but the steelmaking raw material is still under pressure amid a persistent glut.
Investment bank Citi said it has cut its iron ore price forecasts for this year and next, due to expanding supply and said it should fall below $45 a tonne for the market to rebalance.
Spot iron ore, which traded at just below $56 on Friday, has dropped 41 percent from this year's peak.
The most-traded iron ore on the Dalian Commodity Exchange was up 0.6 percent at 432.5 yuan ($63) a tonne, as of 0227 GMT. The contract, for September delivery, touched a seven-month low of 412.50 yuan last week.
Firmer steel supported iron ore, with the most-active rebar on the Shanghai Futures Exchange climbing 0.3 percent to 3,123 yuan per tonne.
But analysts at Citi see further downside risks, saying they expect more than 100 million tonnes in iron ore surplus this year, on top of over 60 million tonnes in surplus in 2016, citing expansion projects by top miner Vale in Brazil and the Roy Hill mine in Australia.
"As prices approach $50 per tonne, we may start to see lower output from Russia, Canada and Ukraine. When prices approach $45 per tonne, high-cost Australian and Brazilian miners could be under pressure to cut," they said in a report.
Citi slashed its 2017 average price forecast to $61 a tonne from $70, and to $50 from $53 for next year.
The bank expects iron ore stocks at Chinese ports, currently near their highest level in 13 years, to peak in the second-half of the year.
"We anticipate steel mills' restocking activities to gradually weaken, not only because expectations on a bearish iron ore outlook have grown, but also because Chinese banks have tightened credit lines to large steel mills and therefore mills are forced to purchase ores in cash," the analysts said.
Inventory of imported iron ore at major Chinese ports stood
at 138.95 million tonnes on Friday, according to data tracked by
SteelHome. The week before, the stockpiles reached 140.05
million tonnes, the highest ever on SteelHome's records that
date back to 2004.
Iron ore for delivery to China's Qingdao port <.IO62-CNO=MB> rose 0.9 percent to $55.75 a tonne on Friday, according to Metal Bulletin. ($1 = 6.8086 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Sherry Jacob-Phillips)