BEIJING, March 1 (Reuters) - Chinese steel mills are slowing...

BEIJING, March 1 (Reuters) - Chinese steel mills are slowing iron ore purchases and seeking cheaper alternatives to Australian supplies after a steep run-up in prices in February, five mill executives and several traders told Reuters this week.

Benchmark prices for ore with 62 percent iron content published by Steelhome SH-CCN-IRNOR62 soared as much as 24 percent following the fatal dam collapse at a Vale SA VALE3.SA -owned mine in late January, which sparked concerns about tight supplies.

Prices peaked just above $94 per tonne on Feb. 11, and traded at $86 on March 1, far above January's average of $76 and the 2018 average of $69, Steelhome data showed.

"We are holding off restocking and running with a low inventory since current prices are too high," said a purchase manager at a large steel mill in China's top steelmaking province Hebei.

Steel demand in China, the world's largest consumer of the metal, has cooled recently amid an overall industrial slowdown which has pressured profit margins at mills.

Four other mill managers said their iron ore inventory had dropped to less than 15 days of use, lower than the normal level of 22 days. They declined to be identified because of company policy.

While ore stocks by mills have tightened, those held at Chinese ports have swelled so far in 2018, reaching 145.05 million tonnes by Feb. 22, the highest since late September, SteelHome data showed.

NON-MAINSTREAM SOURCES Mills are also avoiding major suppliers like Vale and Australian rivals Rio Tinto (RIO) , BHP Group (BHP) and Fortescue Metals Group (FMG) (FMG) , and are seeking cheaper ore from small miners in Australia, South Africa, India and Indonesia, said the traders.

"Even mainstream low-grade ore has soared to a level that we can't afford," said a purchase manager at a steel mill in Jiangxi province.

FMG's Super Special Fines, a blend with iron content of only 56.7 percent, is now at a discount of 16 percent to benchmark 62 percent iron ore versus 33 percent last month.

"(Moderating margins) have influenced customers' preferences for specific products and created increasing demand for lower-grade iron ore," said Danny Goeman, Fortescue sales and marketing director, at a conference in Beijing on Wednesday.

Mills are also considering alternatives to iron ore such as iron sands.

The Jiangxi mill purchase manager said it bought iron sand from Indonesia with 56 percent iron content to save on costs.

"Non-mainstream products suddenly became very hot, although more people are asking rather than making actual purchases," said a manager at a major commodities trading house in eastern Zhejiang province.

($1 = 6.6862 Chinese yuan renminbi)

	<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
China crude steel production vs steel margins	http//tmsnrt.rs/2HRJEsH 

China iron ore prices retreat from February highs http//tmsnrt.rs/2UfQqKa

	^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>