June 5, 2017 / 7:26 AM / 3 months ago

China iron ore rises for second day on restocking demand

* Shanghai steel drops for 8th straight day

* Iron ore stocks at China's ports near 13-year high

By Manolo Serapio Jr

MANILA, June 5 (Reuters) - Iron ore futures in China climbed for a second consecutive session on Monday, rising 2 percent, as recent rapid losses spurred restocking demand among steel producers.

But a sustained drop in Chinese steel prices pulled the steelmaking raw material off session highs, suggesting any further gains may be limited. Shanghai rebar futures fell for an eighth day in a row.

The most-traded iron ore on the Dalian Commodity Exchange closed up 2 percent at 435 yuan ($64) a tonne, but off the session's peak of 443 yuan. The contract slid more than 5 percent last week after hitting a six-month low.

"The divergence between steel and iron ore has been pronounced in recent weeks; driven in part by steel mills easing back on restocking earlier this year," ANZ analysts said in a note.

"However, with prices back below $60/tonne it may have been low enough to entice traders back."

Iron ore for delivery to China's Qingdao port .IO62-CNO=MB rose 3.3 percent to $57.79 a tonne on Friday, after touching a seven-month low in the prior day, according to Metal Bulletin.

But traders say plentiful supply of iron ore could cap any upward momentum in prices.

Imported iron ore at China's ports stood at 136.55 million tonnes as of June 2, only down slightly from the previous week's 136.6 million tonnes which was the most for the stockpiles since 2004, based on data compiled by SteelHome consultancy. SH-TOT-IRONINV

Weaker steel prices may also limit Chinese steel mills' appetite to replenish their iron ore inventory.

The most-active rebar on the Shanghai Futures Exchange ended 3.9 percent lower at 2,939 yuan a tonne, just off the session's trough of 2,938 yuan, its weakest since May 15.

$1 = 6.8046 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Sunil Nair

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