SINGAPORE - Iron-ore futures surged to their highest levels in nearly five months on Monday, buoyed by the announcement of construction on the world's largest hydropower dam and firm steel mill margins.

The most-traded September iron ore contract on China's Dalian Commodity Exchange (DCE) DCIOcv1 ended daytime trade 2.08% higher at 809 yuan ($112.74) a metric ton, after hitting an intraday high of 819 yuan, the highest since February 26.

The benchmark August iron ore SZZFQ5 on the Singapore Exchange was 2.81% higher at $103.6 a ton as of 07:05 GMT, reaching an intraday high of $104.8, its highest since February 27.

China's Premier Li Qiang announced the start of construction on what will be the world's largest hydropower dam, a project expected to drive significant demand for construction-grade steel as part of the country's renewable energy push.

"Iron-ore and rebar futures markets are reacting positively to the announcement of the mega-dam project," said Atilla Widnell, managing director at Navigate Commodities in Singapore.

There is little doubt that its construction will significantly benefit local steel markets and could attract construction-grade steel from across China, especially given that it is three to four times bigger than the Three Gorges Dam, Atilla added.

The Three Gorges Dam is currently the world's largest capacity hydroelectric power station.

Meanwhile, China left its benchmark lending rates unchanged, in line with expectations after slightly better-than-expected second-quarter economic data.

Growing expectations of macroeconomic policy stimulus also drove prices of major steel products higher, Mysteel Global said in a note.

Improved margins on steel sales prompted steel mills to ramp up blast furnace operations, with the average capacity utilisation rate rising by 0.99 percentage points week-on-week during July 11 to 17, Mysteel said in a separate note.

Other steelmaking ingredients on the DCE surged, with coking coal DJMcv1 and coke DCJcv1 up 7.88% and 5.05%, respectively.

Steel benchmarks on the Shanghai Futures Exchange gained ground. Rebar SRBcv1firmed 2.15%, wire rod SWRcv1 rose 2.48%, hot-rolled coil SHHCcv1 climbed 2.2%, and stainless steel SHSScv1 edged up 1.33%.