* Restrictions on new capacity support prices
* Lift seen to be unsustainable as demand still weak
* Coking coal, coke futures drop as mills do not restock
SHANGHAI, Jan 10 (Reuters) - Chinese steel futures extended gains on Wednesday, lifted by Beijing’s tougher rules on building new capacities, but thin trading and weak demand capped gains.
China has issued stricter rules on building new steel production capacity to replace obsolete facilities, a move that helped turn steel prices to positive territory this week as investors expected China’s steel capacity to continue falling this year.
The most active rebar on the Shanghai Futures Exchange edged up 0.7 percent to 3,849 yuan ($589.89) a tonne by 0229 GMT.
“The key issue is steel demand remains weak. Traders and end-users are not restocking. The boost on prices from the tougher rules on building new capacity can’t last long,” said a trader in eastern China’s Wuxi city.
Steel demand seasonally slows as heavy snow and frigid weather dent activity in the construction sector, which is a key consumer of steel products.
Iron ore on the Dalian Commodity Exchange rose 0.3 percent to 559.5 yuan a tonne.
Australia said on Monday it expects iron ore prices to average $51.50 a tonne this year, down 20 percent from 2017, because of rising global supply and moderating demand from top importer China as its steel sector shrinks.
Coke dropped 2 percent to 2,039 yuan a tonne, while coking coal fell 1.5 percent to 1,364 yuan a tonne, as Chinese steel mills finished restocking the two raw materials for production in the near future.
Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB edged up $0.73 to $78.47 a tonne on Tuesday from a day ago, according to Metal Bulletin. ($1 = 6.5250 Chinese yuan) (Reporting by Ruby Lian and Josephine Mason; Editing by Biju Dwarakanath)