Shanghai steel futures gave up modest gains to close near record lows on Tuesday, as a shaky outlook for demand in top consumer China stretched losses to a third straight session.
Chinese steel prices have been on a downtrend since mid-December and chances of a recovery have looked slim after the week-long Lunar New Year break, with construction activity curbed by cold weather. That has helped cut iron ore prices by nearly 10 percent this year, having reached a seven-month low on Monday.
The most briskly traded rebar for May delivery on the Shanghai Futures Exchange fell 0.6 percent to settle at 3,386 yuan ($560) a tonne, just off a record low of 3,380 yuan reached in the previous session.
Rebar, used in construction, hit a session high of 3,427 yuan before heading lower in afternoon trading.
"I don't think there'll be a meaningful rebound in steel prices as of yet. Construction demand hasn't come back and inventory levels are also high," said Helen Lau, senior analyst at UOB-Kay Securities in Hong Kong.
Chinese traders held 17.84 million tonnes of steel products as of last week, up 15 percent from the week ending Jan. 24 or before the New Year holiday, Lau said.
That was mainly driven by an increase in stockpiles of long steel products such as rebar, which rose to 10.44 million tonnes from 8.65 million tonnes during the period, she said.
Traders typically boost inventories ahead of the Lunar New Year break as they anticipate a spike in demand after the holiday. But Lau said it is unclear whether that will happen this year given expectations of slower Chinese economic growth.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI dropped 10 cents to $120.80 a tonne on Monday, the lowest since July 3, data provider Steel Index said.
That followed the sale of a cargo of 61-percent grade Australian iron ore fines at $120.89 a tonne via a tender, lower than the sale price of $122 at a previous tender, traders said.
Many Chinese mills are keeping their cargoes bought through long-term contracts with miners at the ports, said a trader in Shanghai, suggesting they have enough to keep their furnaces running and limiting the appetite for spot material.
Imported iron ore stocks at major Chinese ports stood at 97.25 million tonnes at the end of last week, the highest since October 2012, according to Chinese consultancy Steelhome.
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A separate estimate by consultancy Mysteel puts the stockpile at nearly 103 million tonnes.
In iron ore swaps <0#SGXIOS:>, second-quarter contract traded at $116.75 a tonne in early deals on Tuesday, little changed from Monday's settlement of $116.56, traders said.
Iron ore for May delivery at the Dalian Commodity Exchange closed 0.6 percent lower at 848 yuan a tonne.