April 27, 2018 / 7:35 AM / 8 months ago

UPDATE 1-Shanghai steel marks best week since Dec on robust demand

* Sustained drop in traders’ steel inventories from mid-March

* China says open to trade negotiations with United States

* China’s Xuzhou shuts 3 steel mills in pollution crackdown (Adds mills shut in Xuzhou, updates prices)

By Manolo Serapio Jr

MANILA, April 27 (Reuters) - Chinese steel futures edged higher on Friday and posted their biggest weekly gain in nearly five months, spurred by firm construction demand in the world’s top user of the building material.

Also supporting investor sentiment, China said it is open to negotiating with the United States to resolve trade tensions, noting that the countries should manage their conflicts through dialogue.

The most-active October rebar contract on the Shanghai Futures Exchange closed up 0.8 percent at 3,593 yuan ($567) a tonne. The construction steel product hit 3,613 yuan on Thursday, its highest in seven weeks.

The benchmark contract rose 3.4 percent this week, its biggest such gain since early December.

Rebar inventory at Chinese traders have dropped 21 percent from a five-year high in mid-March to 7.69 million tonnes on April 20, data compiled by SteelHome consultancy showed. SH-TOT-RBARINV

“Steel inventory, especially long products inventory, has fallen steadily in the past month due to healthy demand in the peak season,” Morgan Stanley analysts said in a note.

Even as many Chinese mills ramp up output as demand strengthens, the country’s anti-pollution crackdown has continued to halt operations at some producers.

At least three steel mills in the Chinese city of Xuzhou, in the nation’s No. 2 steelmaking province of Jiangsu, have suspended operations amid orders by the local authorities to shut plants until they meet tough anti-pollution rules, three industry sources said.

Those three plants have a combined capacity to produce 4.25 million tonnes of steel a year, a third of the city’s capacity.

Prices of steelmaking raw materials retreated.

The most-traded September iron ore on the Dalian Commodity Exchange dropped 1.3 percent to 460.50 yuan a tonne. Coke fell 1.2 percent to 1,894.50 yuan and coking coal shed 1.2 percent to 1,157.50 yuan.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB was little changed at $66.28 a tonne on Thursday, according to Metal Bulletin. The spot benchmark has lost more than 1 percent so far this week, following a two-week advance.

$1 = 6.3405 Chinese yuan Reporting by Manolo Serapio Jr., Editing by Sherry Jacob-Phillips and Biju Dwarakanath

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