Shanghai steel futures rose more than 1 percent to their highest in nearly three weeks on Monday, chasing gains in Chinese equities, even as the outlook for steel demand remained bleak.
The most briskly traded October rebar contract on the Shanghai Futures Exchange rose 1.4 percent to close 4,792 yuan per tonne, just off the day's peak of 4,798 yuan, its highest since June 15.
The gains in rebar futures were in line with rises in Chinese equities and other Shanghai-traded commodities including copper SCFcv1 and rubber , said a trader in China's eastern Shandong province.
The Shanghai composite index jumped 2 percent to a six-week high on Monday, helping lift Asian stocks for a fifth straight session, as investors banked on a possible slowdown on China's monetary tightening.
"We're seeing some rebound but rebar will come down again because the steel market is weak. It's too hot to do any construction in China right now," the trader said.
"Steel prices remain low in the physical market."
Steelmakers in China, the world's biggest producer, have slashed prices for July in anticipation of slow construction demand during the summer.
Slower steel demand had dragged down spot iron ore prices to three-month lows as mills were not compelled to restock heavily.
Iron ore prices rose for the first time in around two weeks on Friday on modest buying interest, but traders doubt the gains will be sustained, with tighter credit in China also curbing purchases.
"There was some buying and some inquiries in the market which made sellers a bit bullish," said an iron ore trader in Shanghai.
"I still don't consider it a real turnaround. The small and medium-sized mills in China are virtually cash-strapped."
Two key iron ore indexes, based on Chinese spot transactions, rose for the first time in abut two weeks on Friday.
The Steel Index's 62 percent benchmark .IO62-CNI=SI rose 90 cents to $167.70 a tonne and a similar index by Metal Bulletin .IO62-CNO=MB gained 39 cents to $167.36.
Platts own 62 percent index IODBZ00-PLT rose 75 cents to $171.50.
It was a mixed picture with forward swaps <0#SGXIOS:> with prices of nearby contracts falling and other contracts rising modestly, suggesting spot prices may remain stuck in tight ranges.
"This is the toughest period for a trader because you don't know what's the right time to buy and secondly, the market is not giving you a rally," said the Shanghai-based trader.
"I don't see the market going up or down drastically so there's very, very little room to play."