Chinese iron ore and steel prices recovered on Thursday after easing on the first trading day of the year, but concerns over growth in the world's second-largest economy capped gains.

The rebound followed news that China's state planner has approved inter-city railway projects in the eastern provinces of Jiangsu and Anhui, with a combined total investment value of $33.7 billion.

The most-active rebar contract on the Shanghai Futures Exchange was up 1.1 per cent at 3,426 yuan ($498.69) a tonne as of 0216 GMT. Hot rolled coil edged up 0.6 per cent to 3,327 yuan.

The price gains, however, may not be sustainable, said Richard Lu, analyst at CRU consultancy in Beijing. “The physical market for steel remains very bearish...and we still think that is really because of the weaker demand,” Lu said.

China's economic growth could fall below 6.5 per cent in the fourth quarter as companies face increased difficulties, a central bank magazine said on Wednesday.

Steel prices had turned lower on Wednesday following disappointing economic data from China. “The price increase today may just be some kind of a normal upward correction,” Lu said, noting that it also comes ahead of the expected restocking by steel mills, which he said usually occurs three to four weeks before the Chinese New Year holidays.

The most traded iron ore on the Dalian Commodity Exchange rose 1 per cent to 496.5 yuan a tonne. Coking coal edged up 0.8 per cent at 1,168.5 yuan and coke was 2 per cent higher at 1,923.5 yuan.

Lu said he doubted China's “very promising” infrastructure spending plan would create significant support for steel and steelmaking raw material prices at this stage.

The National Development and Reform Commission announced in a statement on its website on Wednesday that the eight inter-city railway projects will have a total length of 1,063 km, with 980 km in Jiangsu. “We may still need to wait for the details of the plan,” Lu said, pointing out also that China's debt loads may limit its ability to finance such projects.

Spot iron ore for delivery to China was steady at $72.60 yuan a tonne on Wednesday, according to SteelHome consultancy.