BEIJING: Steel rebar and hot-rolled coil futures in China erased early gains and closed lower on Tuesday, as downstream demand recovery fell short of market expectations.

The most-traded October contract for steel rebar on the Shanghai Futures Exchange, used as construction materials, ended down 0.5% to 3,773 yuan ($546.03) a tonne.

Hot-rolled coil, used in cars and home appliances, fell 0.2% to 3,938 yuan per tonne.

"Overall high-supply and high-inventory situation has not changed yet," Huatai Futures wrote in a note, adding that capital for infrastructure projects was tight while the property market was still strictly controlled by regulator.

"(But) August is peak season for bond issuance, while new construction starts are still growing on an annual basis the consumption is set to be expected," said Huatai Futures.

Iron ore futures on the Dalian Commodity Exchange, for January delivery, plunged as much as 3.6% to 808 yuan per tonne. It ended down 2.9% at 814 yuan a tonne.

"Most institutional investors are watching from the side-lines for iron ore prices to correct lower and become more representative of market fundamentals," said Atilla Widnell, managing director of Navigate Commodities.

Spot prices of iron ore with 62% iron content for delivery to China fell by $1 to $125.5 per tonne on Monday from the previous session, according to SteelHome consultancy.

Stainless steel futures on the Shanghai bourse jumped 0.7% to 14,955 yuan per tonne.

Dalian coking coal rose 0.7% to 1,219 yuan a tonne and coke dropped 0.9% to 1,921 yuan per tonne.

Brazilian miner Vale SA said its iron ore grinding hub with annual capacity at three million tonnes has started production in China's eastern Zhejiang province.