The steelmaking ingredient's most-active September contract on the Singapore Exchange fell 3.1% to $143.50 a tonne, after a 9.1% advance in the previous session
He said there is now "greater long-term risk to Chinese iron ore demand given the government wants to cut steel capacity and move towards scrap-intensive electric arc furnace production".
"Australian miners' output is expected to lift only marginally, leaving the Brazilian giant, Vale, crucial to the overall recovery in supply," he said in a monthly outlook.
After the holiday, Widnell said "leading indicators will be the pace at which warehouses restock steel, rebounding blast furnace capacity utilization rates, and slower arrivals of Australian and Brazilian iron ore - all of which should be price supportive".
A report that China's central bank will keep liquidity reasonably ample to support economic recovery also provided a positive background in Thursday's trading.
Prices of key input iron ore remain elevated after last year's spikes driven by robust demand in China, which produced a record-high volume of steel despite the pandemic.
The exchange already tightened single-day open positions on its most traded iron ore contract twice since the start of December to 5,000 lots as prices soared beyond market expectations.
China, the world's biggest steel producer, churned out 87.66 million tonnes of crude steel last month, down from 92.2 million tonnes in October but up from 80.29 million tonnes in November 2019.
"However, a gradual rollout means we would probably see more lacklustre demand growth, which could push the iron ore market back into surplus, weighing on prices," they said in a note.
Steel rebar on the Shanghai Futures Exchange gained 0.7% to 4,070 yuan a tonne. Hot-rolled coil was 0.3% higher at 4,3862 yuan a tonne. Stainless steel increased 1.9% to 13,825 yuan a tonne.