June 18, 2012 / 5:59 AM / 5 years ago

Iron Ore-Spot may struggle to extend rally on demand view

* Benchmark iron ore at 2-week high, may peak soon

* Chinese mills ore restocking seen limited (Updates rebar price)

By Manolo Serapio Jr

SINGAPORE, June 18 (Reuters) - Spot iron ore prices steadied on Monday, but may struggle this week to sustain recent gains with sluggish steel demand in top consumer China likely to limit appetite for the raw material, traders said.

Price offers for imported iron ore cargoes in China were unchanged after mostly rising last week, based on data from industry consultancy Umetal.

"We could see small gains in physical iron ore prices due to some limited restocking taking place," said a Hong Kong-based iron ore trader.

Some smaller Chinese steel mills have low stocks of iron ore after shortening their inventory to 20 days from 30 days, creating some demand for spot material, he said.

"But the upside is limited because we do not see huge demand going forward," he said.

Benchmark iron ore with 62 percent iron content .IO62-CNI=SI rose 0.2 percent to $135 a tonne on Friday, according to Steel Index, a level last seen on June 1.

Friday marked iron ore's sixth straight daily rise, its longest winning streak since late February.

A fall in spot iron ore prices to two-week lows in early June lured buyers back into the market as Chinese steel mills replenished stocks.

But unless steel prices rebound, the iron ore rally may soon fizzle out, as mills finish restocking and traders run out of buyers willing to take cargoes at current prices.

"Caution is building up in the market. We haven't really seen any big moves in steel prices," said an iron ore trader in Shanghai.

The most-traded rebar contract for October delivery on the Shanghai Futures Exchange closed up 0.2 percent at 4,129 yuan ($650) a tonne.

Still, miners continue to sell cargoes on the spot market. Top iron ore exporter Vale is offering 98,000 tonnes of 62.8 percent grade Brazilian iron ore at a tender closing later on Monday, traders said. ($1 = 6.3651 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Daniel Magnowski)

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