* Shanghai rebar drops 1.7 pct, Dalian iron ore down 1.5 pct
* No significant steel restocking ahead of Lunar New Year -CRU
By Manolo Serapio Jr
MANILA, Dec 23 (Reuters) - Shanghai steel futures fell nearly 2 percent on Wednesday as weak demand cut short a rally, putting fresh pressure on raw material iron ore, which has almost halved in value this year.
Tighter supply following shutdowns by unprofitable Chinese steel mills had only the day before lifted Shanghai rebar to a five-week high.
"The price increase was short-lived because there wasn't any significant improvement on the demand side," said Kevin Bai, analyst at industry consultancy CRU in Beijing.
More than 50 million tonnes of steel capacity have shut in China this year, including both state-owned and private steelmakers, according to CRU. urn:newsml:reuters.com:*:nL3N13C1XP
The most-traded May rebar on the Shanghai Futures Exchange SRBcv1 was down 1.7 percent at 1,709 yuan ($264) a tonne by 0243 GMT, after peaking at 1,764 yuan on Tuesday.
Bai doesn't see any significant restocking by steel traders ahead of Chinese New Year in February and only expects a modest pickup in seasonal demand after that week-long holiday.
"Traders don't have enough money to stock up on material. Their financial situation is very difficult," he said.
China's steel demand continued to shrink this year after falling in 2014 for the first time in more than three decades, further tightening cashflow among producers and limiting their access to bank loans.
China's crude steel output dropped 2.2 percent in January-October. Reflecting the resulting slow demand for raw material iron ore, stocks held at China's ports swelled to 92.35 million tonnes last week, the highest since early May. SH-TOT-IRONINV
The most-active May iron ore on the Dalian Commodity Exchange DCIOcv1 fell 1.5 percent to as low as 301.50 yuan a tonne.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI climbed 2 percent to $40.20 a tonne on Tuesday, according to The Steel Index.
The spot benchmark has recovered nearly 9 percent since tumbling to $37 on Dec. 11, its lowest since at least 2008. But for the year, it was still down almost 44 percent.
Iron ore could go down to as low as $35 in the first quarter of 2016, said ANZ commodity strategist Daniel Hynes. He expects around 100 million tonnes of global supply, mostly from China, to exit the market amid weaker prices.
Rebar and iron ore prices at 0243 GMT
Contract
Last
Change Pct Change SHFE REBAR MAY6
1709
-30.00
-1.73 DALIAN IRON ORE DCE DCIO MAY6
301.5
-4.50
-1.47 SGX IRON ORE FUTURES JAN
38.8
-0.63
-1.60 THE STEEL INDEX 62 PCT INDEX
40.2
+0.80
+2.03 METAL BULLETIN INDEX
40.8
+0.34
+0.84
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.4754 Chinese yuan) (Editing by Tom Hogue)