Shanghai rebar steel futures gained for a second day on Wednesday ahead of an expected rise in consumption over the next two months, although a rocky start to August caused prices to drop this month.
Firmer steel prices in China, the world's largest producer and consumer, lifted iron ore prices to their highest since mid-May.
The most-traded January rebar contract on the Shanghai Futures Exchange rose 0.4 percent to close at 4,831 yuan a tonne.
Despite gaining 1.3 percent over Tuesday and Wednesday, rebar ended the month down nearly 2 percent, second monthly drop in three months, following earlier sell-offs in commodities triggered by worries over a struggling U.S. economy and a debt crisis in Europe.
But prices of rebar, used in construction, should rise in September and October, usually the peak consumption season for steel in China.
"The expectation that September and October will be a good season is quite high," said Henry Liu, regional head of commodity research at Mirae Asset Securities in Hong Kong.
"Steel mills and traders believe this could be the last chance for more price increases this year because after October, northern China will be frozen out and there will be no construction activities."
With additional steel capacity coming on stream, the Chinese market may have a "very tough time" after October, said Liu.
China's steel production capacity is likely to rise to 830 million tonnes by the end of 2011 from 750 million tonnes last year, based on Liu's estimates, well above the country's annual output which in 2010 hit a record 627 million tonnes.
Likely to get hit are the big Chinese steel producers which are focused on flat steel products, of which consumption has been weakened by a slow manufacturing sector.
Baoshan Iron & Steel , China's biggest listed steelmaker, on Tuesday reported its first-half net profit fell 37 percent, missing market expectations.
Analysts anticipate weaker third-quarter earnings for Baosteel as Beijing's monetary tightening measures have continued to affect growth in steel-intensive industries such as automobiles and machinery.
Price offers for imported iron ore in China were steady on Wednesday, with Australian 62 percent Newman fines quoted at $182-$184 a tonne, including freight, and Indian 63.5/63 fines at $187-$189, according to Chinese consultancy Umetal.
Index-based spot prices, based on deals in China and which global miners use to fix contract rates, mostly rose on Tuesday.
The Steel Index's 62 percent benchmark .IO62-CNI=SI rose 40 cents to $178.90 a tonne, its highest since May 12.
A similar gauge by Metal Bulletin .IO62-CNO=MB was nearly flat at $179.28