Asia's iron ore benchmarks slipped on Friday as steel futures in Shanghai stretched their losses, but the raw material was headed for weekly gains on expectations that demand will hold up despite China's current steel production restrictions.

China, the world's top steel producer and supplier, is rolling out new policies and drafting fresh ones focusing on tighter environmental control that limits mills' production capacities.

Such structural changes in China's steel sector are likely to just prompt a shift to high-grade and less pollutive iron ore, analysts said, allaying concerns of a significant drop in overall demand.

The most-traded September iron ore on China's Dalian Commodity Exchange ended morning trade down 0.5% at 978.50 yuan ($149.34) a tonne, but was up 0.2% for the week.

May iron ore on the Singapore Exchange slipped 0.5% to $164.40 a tonne, after a five-day rally.

Spot iron ore in China was steady at a four-week high of $170.50 a tonne on Thursday, according to SteelHome consultancy.

"A pause in the rally of steel prices failed to scupper iron ore's recent rebound," ANZ commodity strategists said in a note, referring to the steel-making raw material's recent gains.

Chinese steel futures extended a pullback from Wednesday's record peaks, with construction steel rebar on the Shanghai Futures Exchange down 1%. Hot-rolled coil also slipped 1%.

Both rebar and hot-rolled coil, however, are this year's top gainers so far in China's ferrous metal complex, outshining iron ore.

"The fundamentals are still positive for steel prices," Sinosteel Futures analysts said in a note, citing robust downstream domestic demand.

As of Thursday, 69 of the 126 blast furnaces in China's top steelmaking city of Tangshan were either undergoing maintenance or being idled, with the overall capacity utilisation rate at 57.83%, according to Mysteel consultancy's latest weekly survey.

Both Dalian coking coal and coke edged up 0.2%. Shanghai stainless steel climbed 0.6%.