* Rebar futures up 1.7 pct, iron ore flat after initial spike
* Iron ore prices to remain elevated in Q3 - BMI (Updates prices)
By Manolo Serapio Jr
MANILA, Aug 24 (Reuters) - China’s steel futures advanced on Thursday after sliding 4 percent in the previous session, with a firm outlook for demand in the world’s biggest market underpinning investor sentiment.
Cooler weather is expected to increase construction activity in China and spur steel demand that has been supported this year by Beijing’s infrastructure push.
The most-active rebar on the Shanghai Futures Exchange closed up 1.7 percent at 3,858 yuan ($579) a tonne.
Iron ore on the Dalian Commodity Exchange ended nearly flat at 582.50 yuan per tonne after rising as far as 597.50 yuan earlier.
Along with firm demand, China’s campaign to slash excess steel capacity as it fights pollution and shuts low-quality production has helped tighten supply and boosted prices.
Rebar futures have risen more than 50 percent this year, but the China Iron and Steel Association this week warned price gains won’t be sustained because there won’t be any big shortage in supply.
Steel’s surge has lifted prices of raw material iron ore, with the spot benchmark moving towards $80 a tonne.
BMI Research said it has increased its average iron ore price forecast for this year to $70 from $65 previously as China’s imports of the commodity remain strong due to steady steel production.
Long-term infrastructure projects in China initiated from the second half of 2016 through the first quarter of this year “will ensure prices of iron ore remain elevated in the third quarter” before demand cools in October-December, it said.
“The improving price environment in comparison with 2016 has increased profitability among iron ore producing companies in recent quarters, but they will be cautious in terms of new project investments as the new downturn begins to be felt in 2018,” BMI said in a note.
Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB slid 2.3 percent to $77.82 a tonne on Wednesday, according to Metal Bulletin. The spot benchmark hit $79.81 on Monday, its strongest level since April 6. ($1 = 6.6635 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Richard Pullin and Subhranshu Sahu)