SHANGHAI, March 14 (Reuters) - Chinese iron ore futures surged as much as 5 percent to hit a 14-month peak on Monday amid rising demand as steel mills in the world's top consumer of the steelmaking raw material are picking up production.
The bullish sentiment has driven spot iron ore .IO62-CNI=SI for delivery to China 31 percent higher since the beginning of this year, making it the best performing commodity so far in 2016.
The May contract, most active iron ore future on the Dalian Commodity Exchange DCIOcv1 , hit an intra-day high of 454 yuan($69.92) a tonne, its highest since Jan. 16, 2015. It cut gains to trade at 441.5 yuan a tonne by the midday break.
"Steel mills' inventories are falling as sales are improving and they are accelerating production, lifting appetite for iron ore," said Li Wenjing, an analyst with Industrial Futures in Shanghai.
Chinese steel mills have raised their output since the Lunar New Year holiday that ended in the middle of February to meet expected peak demand in April and May, traders and analysts have said.
Iron ore for immediate delivery to China's Tianjin port dropped 2.3 percent to $56.10 a tonne last Friday, according to the Steel Index. However, overall it rose last week for a fourth consecutive week.
Despite the surge in iron ore prices, there are increasing concerns that finished steel output is outpacing the modest rise in demand amid signs of a slowing Chinese economy. Steel prices are softening as a result.
"Steel exports are slowing while the property sector has not recovered substantially, so I am not very optimistic," Li said.
On the Shanghai Futures Exchange, the most-traded rebar futures SRBcv1 dipped 0.9 percent to 2,035 yuan a tonne by the midday break.
Rebar and iron ore prices at 0335 GMT
Contract
Last
Change Pct Change
SHFE REBAR OCT6
2035
-18.00
-0.88
DALIAN IRON ORE DCE DCIO MAY6
441.5
+9.00
+2.08
THE STEEL INDEX 62 PCT INDEX
56.1
-1.30
-2.26
METAL BULLETIN INDEX
57.09
-0.83
-1.43
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.4930 Chinese yuan renminbi)