MANILA: China's iron ore futures edged lower on Tuesday as demand eased in the wake of a move to restrict production in top steelmaking city of Tangshan, but losses were modest amid hopes that steel mills will soon replenish their inventory of the feedstock.
Benchmark steel contracts also slipped due to softening demand from downstream sectors including construction.
The most traded September 2019 iron ore contract on the Dalian Commodity Exchange inched down 0.6 percent to 629 yuan ($93.70) a tonne, slipping five sessions in six.
Spot iron ore, with 62 percent fines, for delivery to China <SH-CCN-IRNOR62>, was 2.2 percent higher at $95 a tonne on Monday, according to SteelHome consultancy, hovering near five-year highs.
The fresh steel output restrictions in Tangshan have triggered "some short-term, sentiment-driven price changes", said Richard Lu, analyst at CRU consultancy in Beijing.
Tangshan in Hebei province issued a second-level pollution alert on Friday, effective April 20 to April 25, in response to a wave of smog expected to blanket the region.
Steel mills in the city were ordered to halt operations of sintering machines by at least 40 percent or even shut down, based on their emission levels.
"But at some point in the future, when steel mills run down inventories, they have to restock," Lu said. "Blast furnace utilization in China remains very high at the moment."
Restocking demand for iron ore could emerge ahead of the Labour Day holiday in China next week, he said.
"We don't expect prices to fall significantly because there is still some fundamental support for iron ore," Lu said. "Overall, steel demand remains fairly robust."
China's steel futures, however, edged down, with the benchmark construction-used rebar contract on the Shanghai Futures Exchange slipping 0.7 percent to 3,757 yuan a tonne.
Shanghai rebar hit a 7-1/2-year high last week buoyed by firm demand and expectations that Beijing will boost economic stimulus measures by rolling out more infrastructure projects.
"Our predictive analytics model on steel inventory drawdown has started flagging a considerable amount of slowdown in downstream consumption," said Darren Toh of Singapore-based steel and iron ore data analytics company Tivlon Technologies.
The slowdown that began last week has prompted steel mills to also go slow in their iron ore procurement, he said.
"Our data analytics model is suggesting further slowdown in iron ore consumption from now till June and prices are likely to grind lower to $70s levels," Toh said.
Hot-rolled coil slipped 0.9 percent to 3,692 yuan a tonne.
Coking coal was up 0.2 percent at 1,337.5 yuan a tonne, while coke inched down 0.1 percent to 2,046 yuan.
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