Dalian iron ore ticks up, but demand worries weigh

MANILA: Chinese iron ore futures edged higher on Friday, but struggled to rebound from sharp losses in the prior session amid concerns demand for the steelmaking raw material would wane as many mills curb output over winter.

Mills in some northern Chinese cities, including top steel-producing Tangshan, were ordered to cut output this month or a month ahead of schedule, acting on government policy to fight smog caused by pollution from industrial plants.

The most-active iron ore contract for January delivery on the Dalian Commodity Exchange was up 0.5 percent at 447 yuan ($68) a tonne by 0215 GMT, after sliding 3.4 percent on Thursday.

"Market participants felt that authorities could impose stricter restrictions on sintering and even steel output in China in coming days as smog conditions deteriorate in northern China," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

Mills in Tangshan were ordered to cut sintering output by half from Oct. 12. Sintering is a process where iron ore is heated into a mass as a prelude to steelmaking and which causes heavy pollution.

China's steel output dropped 3.7 percent in September from a record high the previous month as mills reduced production in line with Beijing's campaign, and analysts predict further declines as winter curbs set in.

Weaker Chinese iron ore futures had pulled back benchmark spot prices to a one-week low near $60 a tonne.

Iron ore for delivery to China's Qingdao port <.IO62-CNO=MB> fell 2.9 percent to $60.88 a tonne on Thursday, according to Metal Bulletin, marking its biggest single-day drop in nearly a month.

The spot benchmark has lost 2.6 percent so far this week, after being largely steady in the past two weeks.

"On the longer term, iron ore prices will remain weak because the production controls will end in March next year," said an iron ore trader in Beijing.

The most-traded January rebar contract on the Shanghai Futures Exchange rose 0.5 percent to 3,639 yuan per tonne.