MANILA: China's stainless steel futures jumped to their highest in three weeks on Wednesday, extending a rally fuelled by brisk demand coupled with low inventory and a surge in prices of raw material nickel.

The most-traded stainless steel contract with March expiry on the Shanghai Futures Exchange rose as much as 2.6% to 14,165 yuan ($2,192.79) a tonne, the strongest since mid-December.

"The current spot market is tight, and downstream demand has been doing well while export orders are good. The price of ferronickel at the raw material end has remained high," analysts at Huatai Futures said in a note.

Nickel prices surged to two-week highs on Monday as concerns over supplies surfaced after an earthquake in major supplier Indonesia.

The earthquake shook the island of Sulawesi, causing minor damage to buildings in Indonesia Morowali Industrial Park, where China's Tsingshan Holding Group produces nickel pig iron, though operations were generally unaffected and production continues.

Chinese stainless steel producers mainly use nickel pig iron, a low-grade ferronickel and cheaper alternative to pure nickel, as feedstock.

Iron ore futures, meanwhile, retreated on profit-taking after three straight sessions of gains.

The most-active May iron ore contract on the Dalian Commodity Exchange fell as much as 1.4% to 1,016 yuan a tonne.

Iron ore's February contract on the Singapore Exchange dropped 1.8% to $160.79 a tonne.

Lingering concerns over tight supply of iron ore pushed spot prices of the steelmaking raw material in China, the world's top steel producer, further closer to $170 a tonne on Tuesday, according to SteelHome consultancy data.

Construction steel rebar on the Shanghai exchange lost 1.2%, while hot-rolled coil slipped 0.4%.

Dalian coking coal dipped 0.2% but coke gained 0.4%.