* China steel stockpiles have dropped for 5 weeks in a row
* Dalian iron ore also stretches Monday's gains
By Manolo Serapio Jr
MANILA, June 28 (Reuters) - Shanghai rebar steel futures advanced on Tuesday, touching a fresh seven-week peak and adding to sharp gains from the session before amid low inventories that pointed to firm demand.
Shanghai rebar surged by the maximum 6 percent allowed by the exchange on Monday, following weekend news of a planned restructuring by leading Chinese steelmakers Baosteel Group 600019.SS and Wuhan Iron and Steel Group 600005.SS . announcement reflects China's efforts to consolidate its massive steel sector to improve efficiency amid global calls for Beijing to address its overcapacity.
Falling steel inventories in China also suggest firm appetite. In the week ended June 24, Chinese steel stockpiles dropped 1.4 percent from the prior week to 8.84 million tonnes, said Argonaut Securities analyst Helen Lau.
Steel inventory has fallen for the past five weeks and the current level is 47 percent lower than a year ago, said Lau, adding that the utilisation rate at China's blast furnaces is also 9 percentage points below the same period last year.
"Against these low steel inventory and low utilization rates, there is room for steel prices to increase in our view, given that current steel prices are around 30 percent lower than the same period last year," Lau said in a note.
The most-traded rebar on the Shanghai Futures Exchange SRBCv1 was up 2.1 percent at 2,257 yuan ($340) a tonne by 0206 GMT. The construction steel product touched 2,286 yuan earlier, its highest since May 9.
Benefitting from firmer steel prices, the most-active iron ore on the Dalian Commodity Exchange DCIOcv1 rose as far as 420.50 yuan per tonne, also its strongest since May 9.
It was last up 3.6 percent at 416 yuan, adding to Monday's nearly 6-percent spike.
But price gains in the steelmaking raw material may not last as iron ore stockpiles at China's ports stay high, traders say.
Inventory of imported iron ore at major Chinese ports stood at 101.5 million tonnes as of June 24, the most since December 2014, according to data tracked by SteelHome consultancy. SH-TOT-IRONINV
($1 = 6.6476 Chinese yuan)