Shanghai steel futures edged higher on Monday, benefitting from increased appetite toward risk assets as euro zone worries eased with Europe lending to debt-stricken Spain, although concerns about sluggish Chinese steel demand limited gains.

 

The most active rebar contract on the Shanghai Futures.Exchange edged up 0.3 percent to 4,121 yuan ($650) tonne by 0632 GMT, gaining far less than other Shanghai-traded commodities like copper and rubber which jumped between 2.5 and 3 percent.

 

"I don't think the picture has changed much for China's steel market. We are still unsure whether demand will pick up strongly this month onwards," said an iron ore trader in Shanghai.Spot steel prices in China have been erratic, with billet in the key Tangshan area in the country's top steel producing Hebei province dropping 20 yuan to 3,600 yuan a tonne over the weekend, after jumping by 70 yuan on Friday, traders said.

 

Slow demand and a sustained production pace had weighed on steel prices in China, the world's biggest consumer and producer.Government data released on Monday showed China's crude steel output rose 2.5 percent from a year earlier to 61.234 million tonnes in May. That was also up from 60.575 million tonnes in April.

 

In terms of daily output, the industry group China Iron and Steel Association said on Friday that the pace had slowed to an average 1.96 million tonnes over the May 21-31 period, down nearly 4 percent from the previous 10 days, and from a record daily run of 2.045 million tonnes early last month.

 

But analysts say output in China, which produces around half of the world's steel, remains high and could pressure prices even outside the country.

 

"In the interim, the West is increasingly at risk from Chinese overproduction as steelmakers continue to cut export prices in attempts to use the export market as a "supply relief valve" to reduce pricing pressure at home," Chicago-based consultancy Steel Market Intelligence said in a note.

 

"We believe that global pricing will see further downward pressure in the near-term as global steel demand slows during the summer months."

China's strong steel output sustained its demand for imported iron ore, with the world's No. 1 buyer importing 63.84 million tonnes in May, up 10.7 percent from April.

 

There was limited physical activity in the iron ore market at the start of the week, after benchmark 62-percent grade ore.IO62-CNI=SI gained 0.6 percent to $131.40 a tonne on Friday."Prices are relatively stable, but we need to hear more deals to see if Friday's rise will be sustained.

 

Trading volumes are still not that big," said the Shanghai-based trader."There's buying interest, but it's a slow day given it's Monday. People are still cautious," said a trader in Hong Kong.Top miner Vale is selling a total 80,000 tonnes comprising of 63.8-percent grade iron ore fines and 65.5-percent grade lumps at a tender that closes later on Monday, traders said. The Brazilian miner is also selling another 150,000 tonnes of 60-percent grade high-silica iron ore fines, they said.