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UPDATE 1-China stainless steel surges on higher raw material costs, tight supply

* Shanghai stainless steel hits highest in over two months

* Stainless steel feedstock nickel tops $18,000/T on LME

* Dalian iron ore benchmark jumps 3.1% on restocking demand (Updates prices, adds chart)

MANILA, Jan 7 (Reuters) - China’s stainless steel futures extended gains on Thursday, leaping as much as 5%, as higher cost of feedstock nickel and tight supply drove prices higher for the metal used in vehicles and cookware.

The most-active March stainless steel contract on the Shanghai Futures Exchange rose to the day’s upside limit of 14,725 yuan ($2,280.72) a tonne, the highest since late October.

The smelting cost of nickel pig iron, the feedstock for stainless steel, remains high because many Chinese smelters are using high-priced nickel concentrate bought recently, according to a Mysteel consultancy report citing a market source.

Prices of nickel continued to rise, with the London Metal Exchange benchmark crossing the $18,000 a tonne level for the first time since September 2019, as extended riots in key producer New Caledonia fuelled supply worries.

Shrinking nickel inventories in warehouses monitored by the Shanghai exchange, which fell by more than half in 2020, have also added pressure on prices.

“The domestic spot premium continues to strengthen, and there is still support under the nickel price,” Huatai Futures analysts said in a note.

“The stainless steel futures price may remain strong for the time being”, with the short supply in the spot market providing extra support, they said.

Iron ore prices also rose, propelled by restocking demand from Chinese steel mills, with the most-active May contract on the Dalian Commodity Exchange up 3.1% at 1,062.50 yuan a tonne at the close of daytime trading.

The steelmaking ingredient’s February contract on the Singapore Exchange gained 1.2% to $167 a tonne by 0709 GMT.

Spot iron ore for delivery to top steel producer China SH-CCN-IRNOR62 steadied at $168 a tonne on Wednesday, according to SteelHome consultancy.

Construction steel rebar on the Shanghai Futures Exchange advanced 1.7%, while hot-rolled coil jumped 2.9%.

Dalian coking coal gained 1.9% and coke added 0.4%.

Reporting by Enrico Dela Cruz; Editing by Shailesh Kuber and Ramakrishnan M.

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