(Reuters) - Spot iron ore prices scaled six-week highs and offers in top buyer China remained firm on Tuesday on stockpiling demand, although traders say a decline in Shanghai rebar futures could fuel a short-term correction.
Iron ore prices have been on the rebound since mid-March as Chinese mills replenish run-down inventories in anticipation of a pickup in steel demand, as construction activity picks up speed.
"Steel demand will stay healthy in the second quarter as construction activities get underway. But after the sharp increase in the short term, I doubt if the increase in iron ore prices will be sustained," said an iron ore trader in Shanghai.
Key iron ore indexes, based on spot transactions in China and which global miners use in setting quarterly contracts, on Monday rose to their highest since late February.
The Platts 62 percent iron ore index IODBZ00-PLT rose 50 cents to $184.50 per tonne, its highest since Feb. 24
The Steel Index''s 62 percent benchmark .IO62-CNI=SI surged $2.20 to $183 per tonne, and Metal Bulletin''s index .IO62-CNO=MB gained $1.59 to $181.45, both the highest since Feb. 25.
Offers for Indian ore with 63.5 percent iron content stood at $188-190 per tonne, including freight, on Tuesday, almost flat from Monday, Chinese consultancy Mysteel said.
The most active steel rebar futures on the Shanghai Futures Exchange closed down 0.4 percent at 4,903 yuan ($750) per tonne, after rising to a six-week high of 4,937 yuan on Monday.
Analysts said the modest drop in steel futures may be a technical correction rather than a reflection of demand, as traders are still trying to raise prices in the spot market.
"If steel prices keep falling, iron ore prices may start to fall next week and will find it hard to stay above $180 per tonne then," the Shanghai trader added.
HEALTHY OUTLOOK
Fortescue Metals , Australia''s no. 3 iron ore producer, remains upbeat on iron ore prices thanks to strong demand from top steel producer and iron ore consumer China. [ID:nL3E7FC091]
Iron ore prices are likely to remain reasonably strong as there is not much new supply coming on stream at this point, Chief Financial Officer Stephen Pearce said.
The miner planned to raise output to 12 million tonnes in the current quarter after heavy rains slashed March quarter shipments by 16 percent to 8.37 million tonnes.
Chinese steelmakers are still running at high capacity utilization rates to meet rising demand from the construction sector, which will lead to strong consumption for the key raw material.
China''s daily crude steel output rose 4.6 percent to 1.914 million tonnes in March from February, data from the China Iron & Steel Association showed.
China''s third-biggest steelmaker Wuhan Steel kept prices of its main carbon steel products largely flat for May bookings, hoping that end users will stock up in the second quarter after it cut prices for April.
Iron ore swaps cleared by the Singapore Exchange extended gains on Monday as investors anticipated spot prices to stay high on strong demand in the long run.
The April contract rose $1.70 to $181.95 per tonne, May jumped $2.80 to $175.80 and June gained $1.73 to $172.10.