(Updates prices)
By A. Ananthalakshmi
SINGAPORE, Dec 24 (Reuters) - Shanghai steel futures rose for a fifth session out of six on Thursday, supported by a short-term tightening of supplies in top consumer China, although a bearish outlook kept gains in check.
A global oversupply and shrinking Chinese steel demand have pummeled iron ore prices, with the spot rate down 44 percent this year.
The most-traded May rebar on the Shanghai Futures Exchange SRBcv1 closed up 0.4 percent at 1,724 yuan ($266.11) a tonne, following a 1.2 percent drop in the previous session. It reached a five-week high of 1,764 yuan earlier in the week after data showed output cuts slashed inventory of some steel products in China.
The most-active May iron ore contract on the Dalian Commodity Exchange DCIOcv1 failed to get a boost from the rise in steel futures and closed down 0.2 percent at 304 yuan ($46.92) a tonne.
The slight recovery in prices was likely due to the year-end tightening of supplies as steel companies cut production, said Helen Lau, analyst at Argonaut Securities in Hong Kong.
Stocks of rebar, a steel product used in construction, stood at 3.647 million tonnes at 28 major cities in China on Dec. 18, down 0.8 percent from the previous week, according to data tracked by industry consultancy SteelHome.
"However, this is not a fundamental change in iron ore supply and demand. The chronic problem in the market is oversupply," said Lau, adding the demand continues to drop.
China's steel demand continued to shrink this year after falling in 2014 for the first time in more than three decades, further tightening cash flow among producers and limiting their access to bank loans.
Traders do not expect any significant restocking ahead of Chinese New Year in February.
Slashing China's excess steel capacity will be a top priority for the government over the next five years and Beijing is looking at establishing a fund linked to this target, state news agency Xinhua said on Wednesday, citing an industry association. urn:newsml:reuters.com:*:nL3N14C1ZC
More than 50 million tonnes of steel capacity have shut in China this year, including both state-owned and private steelmakers, according to industry consultancy CRU.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI was unchanged at $40.20 a tonne on Wednesday from a day earlier, 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 44 percent.
Rebar and iron ore prices at 0743 GMT
Contract
Last
Change Pct Change SHFE REBAR MAY6
1724
+6.00
+0.35 DALIAN IRON ORE DCE DCIO MAY6
304
-0.50
-0.16 SGX IRON ORE FUTURES JAN
39.07
+0.24
+0.62 THE STEEL INDEX 62 PCT INDEX
40.2
+0.00
+0.00 METAL BULLETIN INDEX
40.82
+0.02
+0.05
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.4785 Chinese yuan renminbi)