* Iron ore futures rise on firmer steel prices
* But rising port inventories drag
* Steel mills cut restocking of iron ore
SHANGHAI, Feb 25 (Reuters) - Chinese iron ore prices inched up on Thursday on firmer steel prices as investors expected steel demand to pick up in March, but rising port inventories of the raw material could curb gains.
A recovery in steel prices has encouraged Chinese mills to resume production and increase buying of the steelmaking ingredient, driving spot iron ore up 17 percent since the beginning of the year.
But gains could ease as steel mills slow restocking as port inventories rise.
"Because there is no change in the gap between supply and demand, the trend towards higher prices will not last, and steel mills need to calmly assess market changes and refrain from blindly expanding production," the China Iron & Steel Assiciation said in a monthly report this week.
The most-traded May iron ore on the Dalian Commodity Exchange DCIOcv1 traded up nearly 1 percent at 373.5 yuan ($57.17) a tonne by the midday break.
Benchmark 62-percent grade iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI slipped 0.6 percent to $50.20 a tonne on Wednesday, after running a four-day hike, based on data compiled by The Steel Index.
"Before steel demand improves more firmly, the iron ore price rally could easily stall after hitting $50 a tonne," said Li Wenjing, an analyst with Industrial Futures in Shanghai.
"Steel mills have started to cut restocking, and port inventories of iron ore keep rising, weighing on prices."
Rebar futures for May delivery on the Shanghai Futures Exchange SRBcv1 edged up 0.6 percent to 1,938 yuan a tonne by midday break.
Rebar and iron ore prices at 0357 GMT
Contract
Last
Change Pct Change
SHFE REBAR MAY6
1938
+12.00
+0.62
DALIAN IRON ORE DCE DCIO MAY6
373.5
+3.50
+0.95
THE STEEL INDEX 62 PCT INDEX
50.2
-0.30
-0.59
METAL BULLETIN INDEX
51.64
+0.04
+0.08
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.5335 Chinese yuan renminbi)