Iron ore creeps higher as China steel margins recover

Aug 2 (Reuters) - Dalian and Singapore iron ore futures rose in a volatile session on Tuesday, as traders focused on improving steel margins in top steel producer China, while weighing prospects of further output cuts.

The most-traded iron ore, for September delivery, on China's Dalian Commodity Exchange DCIOcv1 ended daytime trade 1.5% higher at 807 yuan ($119.32) a tonne, near Monday's four-week high of 817.50 yuan.

On the Singapore Exchange, the steelmaking ingredient's benchmark September contract SZZFU2 climbed 0.7% to $115.50 a tonne, as of 0725 GMT, but off the previous session's four-week peak of $120.95.

"The recovery in mills' margins has spurred hopes that (raising) production capacity may resume more quickly than expected," said Daniel Hynes, a senior commodity strategist at ANZ.

Improved profitability has prompted Chinese mills to restart some blast furnaces, among dozens of such production facilities idled as weak demand in recent weeks had squeezed margins.

Steel margins have improved following a price rebound, and Mysteel consultancy said the momentum could be sustained this month, citing its chief analyst Wang Jianhua.