Shanghai steel futures hit their highest in more than a week on Thursday after a recent drop in prices spurred traders and consumers to boost stockpiles, although a wobbly outlook for demand is keeping the restocking efforts modest.
Tighter supply is also aiding steel prices, which touched record lows last week, as Chinese producers curb output in response to slower demand. The moves to cut production is limiting buying interest for steelmaking raw material iron ore, whose spot price dropped to six-month lows this week.
Inventory of five major steel products in China rose to 13.88 million tonnes as of Jan. 10, up about 5 percent from a month ago, based on data from industry consultancy Mysteel.
"I think traders and users are trying to increase their inventory because prices have dropped a lot," said Zhou Ting, analyst at Jinrui Futures in Shenzhen.
"But the restocking activity is mild because the outlook for demand is not too good given the expected slowdown in the overall economy."
The most-traded rebar contract for May delivery on the Shanghai Futures Exchange touched a session high of 3,509 yuan ($580) a tonne, its loftiest since Jan. 7, before slipping 0.3 percent to settle at 3,481 yuan.
Rebar, a construction steel product, hit a record low of 3,441 yuan on Friday.
More Chinese steelmakers incurred losses in November compared with the previous month amid slower economic growth, industry website www.cnchemicals.com said, citing data from the China Iron and Steel Association.
China is restructuring its economy to shift away from steel-intensive, investment-driven expansion to growth based on consumption.
The country, the world's top consumer and producer of steel, is forecast to increase output of crude steel by around 3 percent this year, less than half the growth in the January-November period.
China's average daily crude steel output stood at 1.961 million tonnes in late December, the first time the pace fell below 2 million tonnes since last February.
"With China's economic restructuring underway, steel production started to peter out in the second half of 2013 and will continue to cool down in 2014, reducing demand for iron ore and weighing down on iron ore prices in our view," UOB-Kay Hian Securities senior mining analyst Helen Lau said in a note.
"Weakening steel demand will test steel production discipline."
Iron ore for immediate delivery to China .IO62-CNI=SI was little changed at $129.60 a tonne on Wednesday from $129.50 on the previous day, its weakest since July 16, according to data compiler Steel Index.
But top miners are keeping their bets on China, which buys about two-thirds of the world's iron ore.
Rio Tinto , the world's No. 2 miner of the commodity after Brazil's Vale, said its iron ore output reached 266 million tonnes in 2013, slightly ahead of guidance and up 5 percent on year.
Iron ore for May delivery on the Dalian Commodity Exchange closed up 0.2 percent at 879 yuan a tonne.