Chinese iron ore futures hit three-week highs on Monday, supported by firmer steel prices as producers curb output in line with China’s campaign for bluer skies.
But they pulled back from the highs on worries demand for the raw material would weaken in coming months as the steel output cuts deepen.
China has ordered mills across the northern part of the country to cut production over winter to limit smog. Some cities have already implemented the reduction, including the top steelmaking city of Tangshan.
Those steel production cuts would weaken demand for iron ore, the main steelmaking ingredient, over the course of the winter restrictions, from November through March, traders said.
“Many mills have to reduce production or cut production hours because of the government orders and in some areas it has already started,” said a Shanghai-based iron ore trader.
“So any increase we’re seeing in Dalian prices now is a short-term situation. Also prices have come off a lot from over 600 yuan before,” the trader said.
The most-traded iron ore contract on the Dalian Commodity Exchange closed up 1.2 percent at 458.50 yuan ($69) a tonne, after peaking at 471.50 yuan earlier, its strongest since Sept. 28.
But the price has dropped 25 percent from a five-month high of 609.50 yuan reached on Aug. 22.
Stocks of imported iron ore at China’s ports rose 0.6 percent from the previous week to 132.15 million tonnes for the week ended on Oct. 20, data compiled by SteelHome consultancy shows.
The stockpiles have risen 16 percent this year.
The most-active rebar on the Shanghai Futures Exchange closed 0.6 percent higher at 3,700 yuan per tonne, also off the day’s peak of 3,778 yuan.
China’s National Development and Reform Commission, the country’s economic planning agency, said over the weekend that the country would continue to crack down on steel overcapacity, prevent obsolete plants from restarting and promote more mergers in the sector.
China said it has cut annual crude steel capacity by as much as 110 million tonnes over the last five years, with coal capacity slashed by as much as 400 million tonnes, though some analysts say much of the outdated, inefficient plants are merely being replaced with leaner, cleaner ones.