BEIJING, May 17 (Reuters) - Steel and iron ore futures in China edged up during the early session on Tuesday, with the market stabilising after weeks of volatility, but the outlook remains uncertain with underlying demand still weak.
Rebar used in construction on the Shanghai Futures Exchange SRBcv1 ended the morning session up 0.24 percent at 2,058 yuan ($315.72) per tonne. The most-traded iron ore contract on the Dalian Commodity Exchange DCIOcv1 closed at 369.5 yuan a tonne, up 0.54 percent.
Rebar futures prices suffered their biggest weekly drop since 2009 last week, shedding 12 percent, amid concerns that a rapid increase in production by Chinese steel mills has not been matched by any corresponding improvement in demand.
China's average daily crude steel output reached a record 2.314 million tonnes in April, up 1.5 percent compared to the previous month, raising concerns that mills were ignoring the long-term health of the sector in pursuit of quick profit.
Executives at an industry conference in Beijing on Monday warned that despite recent price increases, there had been no significant improvements in demand, and overcapacity still showed little sign of easing. in attendance said the steel mills that returned to full production in March and April were likely to suffer even more as prices retreat in the coming months, particularly if the price of raw materials like coking coal remain relatively high.
Spot prices remain in decline, with the China Iron and Steel Association's composite index falling 7.4 percent to 76.45, according to data published on Monday. The index is measured against 1994 prices and it remains around a third higher than the start of the year.
The association said in a notice on Tuesday that the April steel price surge was driven by a slight increase in demand, low steel product stockpiles and heightened market expectations about government policies aimed at easing the capacity surplus, but it was not likely to last as firms continue to overproduce.
"With no changes in the excess supply situation, the big increase in production by steel enterprises will worsen the gap between supply and demand," it warned. "Steel enterprises should carefully analyse market changes and not blindly expand production."
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI edged up 0.6 percent to $53.80 a tonne on Monday, according to price assessor The Steel Index, but it remains nearly 22 percent below its 2016 high, set on April 21. ($1 = 6.5185 Chinese yuan)