March 30, 2017 / 9:06 AM / 4 months ago

UPDATE 1-Shanghai steel extends gains amid capacity cuts, but iron ore slips

3 Min Read

* Shanghai rebar off session highs, Dalian iron ore erases gains

* Spot iron ore stays above $80/tonne (Updates prices)

By Manolo Serapio Jr

MANILA, March 30 (Reuters) - Shanghai rebar steel futures rose for a third straight session on Thursday, supported by China's campaign to eliminate surplus capacity, although concerns over tepid seasonal demand capped their upside.

The gains initially helped iron ore recover further from an early-week slide that pulled down futures to their weakest in more than two months and spot prices to their lowest in seven weeks.

But iron ore futures erased gains in afternoon trading and rebar came off the day's peaks, suggesting still shaky investor sentiment.

The most-active rebar on the Shanghai Futures Exchange closed up 0.6 percent at 3,142 yuan ($456) a tonne, after earlier peaking at 3,189 yuan. The construction steel product touched 3,003 yuan on Monday, its weakest since Feb. 10.

"China's ongoing efforts in reducing outdated capacity, constraining steel production and regulating pollutant emissions will tighten the steel market, supporting steel prices going forward," Argonaut Securities analyst Helen Lau said in a note.

China's Hebei province, a major steel-producing area, has launched a fresh probe into steel overproduction in the city of Tangshan amid concerns that firms have continued to raise output despite mandatory capacity cuts.

The northeastern Chinese province of Liaoning has promised to close more than 10 million tonnes of low-grade steel capacity by the end of June as part of its efforts to clean up the sector, the official Liaoning Daily reported on Tuesday.

Iron ore for September delivery on the Dalian Commodity Exchange closed 0.5 percent lower at 559 yuan per tonne, after rising as far as 581.50 yuan. The contract on Monday touched its lowest since Jan. 10 at 541 yuan.

The towering stocks of imported iron ore at China's ports which underline slow demand for the steelmaking raw material has put prices under pressure.

Port inventory reached 132.45 million tonnes on March 24, the most since at least 2004, according to SteelHome consultancy. SH-TOT-IRONINV

Iron ore for delivery to China's Qingdao port .IO62-CNO=MB edged up 0.3 percent to $82.25 a tonne on Wednesday, according to Metal Bulletin. ($1 = 6.8889 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Joseph Radford and Biju Dwarakanath)

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