* Steel prices rise in afternoon trading, reverse earlier losses
* Stronger raw materials prices lift steel
* Heavy snows disrupt transportation of coking coal and coke (Recasts, adds new comment, updates close prices)
SHANGHAI, Feb 5 (Reuters) - Chinese steel futures rose in late trading on Monday, driven up by stronger raw material prices after icy weather curtailed road and rail transport, but gains were capped due to thinning demand.
Icy weather and heavy snows in many regions have limited the transportation of raw materials like coking coal and coke, lifting prices even as appetite from steel mills remains subdued.
“Transportation was hit by the poor weather, and some traders restocked the raw materials on expectation that steel mills would pick up production after the holiday,” said an analyst in Taiyuan, Shanxi province, who declined to be named as he is not authorised to speak to media. China’s Lunar New Year holiday begins on Feb. 15.
The most active rebar on the Shanghai Futures Exchange rose 0.5 percent to 3,967 yuan ($630.07) a tonne by close. Prices earlier fell to as low as 3,922 yuan.
Coking coal on the Dalian Commodity Exchange surged 4.2 percent to 1,369 yuan a tonne and coke jumped 4.7 percent to 2,123.5 yuan a tonne.
Chinese steel mills have been reducing production as Beijing ordered output curbs in 28 cities for the heating season between mid-November and mid-March as part of its battle against smog.
Seasonal weakness also slowed down steel production. Steel demand in the world’s top producer has faltered as construction activity has eased due to cold weather and in the run-up to holiday.
“There are talks that the winter output curbs may extend in Hebei, but mills in other regions will resume production,” the analyst said.
Sources said last week that the top steelmaking city of Tangshan is considering extending the production curbs though Hebei province denied this.
“The near-term futures will be fluctuating. It’s closer to the Spring Festival and traders have gradually left the market, which doesn’t have a clear trend now,” said Bai Jing, an analyst with Galaxy Futures in Beijing.
Dalian iron ore futures closed up 2.5 percent to 526.5 yuan a tonne.
$1 = 6.3021 Chinese yuan renminbi Reporting by Ruby Lian and Josephine Mason; Editing by Richard Pullin and Christian Schmollinger