February 16, 2017 / 3:24 AM / 5 months ago

China iron ore, steel steady after rapid rally

3 Min Read

* Short-lived impact from China steel output cuts -Morgan Stanley

* Spot iron ore pulls back from 30-month high

By Manolo Serapio Jr

MANILA, Feb 16 (Reuters) - Chinese iron ore and steel futures stabilised on Thursday after recent sharp gains that pushed the steelmaking raw material to a record high.

Expectations of a pickup in construction activity and steel supply tightening in China, the world's largest producer, have helped steel prices rally this year, fueling a rapid rise in iron ore markets.

The most-active rebar on the Shanghai Futures Exchange was up 0.6 percent at 3,432 yuan ($501) a tonne by 0303 GMT. The construction steel product reached a two-month high of 3,458 yuan on Wednesday.

Iron ore on the Dalian Commodity Exchange was flat at 703 yuan per tonne, after peaking at 718 yuan in the prior session, matching its highest intraday level touched in October 2013, when the exchange launched iron ore futures.

Rebar has gained 18 percent so far this year and iron ore has risen 27 percent.

To improve air quality during the annual meeting of the National People's Congress in early March, governments in Beijing, Tianjin and Hebei have released orders for steel mills to cap production from late February to early March, Chinese commodities firm Xiben New Line reported.

The Beijing-Tianjin-Hebei region produced around 210 million tonnes of crude steel last year, or 26 percent of China's total output, analysts at Morgan Stanley said in a note.

If half of steel production in the region is capped for 20 days, the decline in production could be 5.8 million tonnes, they said.

"In this case, it may create short-term supply tightness and hence price reactions, as demand recovers starting from late February," they said.

"(But) overall, we expect the potential impact to be short-lived."

Iron ore for delivery to China's Qingdao port .IO62-CNO=MB dropped 0.7 percent to $91.05 a tonne on Wednesday, according to Metal Bulletin.

It was the second straight day of decline for the spot benchmark after touching a 30-month peak of $92.23 on Monday. ($1 = 6.8577 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Joseph Radford)

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