SHANGHAI, Dec 22 (Reuters) – Chinese steel futures extended gains into a second day on Friday, buoyed as low inventory levels stoked expectations of re-stocking down the line.

The most active rebar on the Shanghai Futures Exchange had climbed 2.6 percent to 3,970 yuan ($603.88) a tonne by the close, posting its biggest daily gain in more than two months. It ended the week by up 2.7 percent after two straight weeks of losses.

“The financing cost is higher in the year-end and traders are not restocking, so inventories are low,” said Bai Jing, an analyst with Galaxy Futures in Beijing. That suggests re-stocking will kick-in down the road.

Rebar inventories held by traders had dropped 4,500 tonnes to 3.017 million tonnes by late on Thursday, analyst said, citing data from industry website Mysteel.

Bai also noted that futures were being lifted as investors looked to narrow a big discount on futures to spot, which hit as much as about 1,000 yuan last week.

Spot prices for rebar are at 4,650 yuan a tonne in Shanghai and 4,250 yuan a tonne in the northern city of Tianjin city, Bai said.

Iron ore on the Dalian Commodity Exchange edged up 1.9 percent to 546 yuan a tonne. It surged 7.4 percent this week in its largest weekly gain since early August.

The key steelmaking raw material climbed higher driven by stronger steel prices despite government-imposed steel output cuts to fend off smog.

Iron ore for delivery to China’s Qingdao port <.IO62-CNO=MB> stood little changed at $72.82 a tonne on Thursday, according to Metal Bulletin.

Coke was up 1 percent at 2,118 yuan a tonne and coking coal gained 1.1 percent to 1,392.5 yuan a tonne.

($1 = 6.5742 Chinese yuan renminbi)

(Reporting by Ruby Lian and Josephine Mason; Editing by Joseph Radford)

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