OREANDA-NEWS. China's iron ore fines prices are likely to remain under pressure through rest of this year because of environmental restrictions imposed in key steel-producing cities.

The Argus ICX price for 62pc imported fines has fallen by 21pc since 4 September to $61.85/t yesterday.

Pig iron output will be reduced by 50pc from November-March in 28 cities in north, east and central China, as part of government efforts to reduce emissions during the winter heating season. Higher burning of coal to heat homes and offices can increase emissions by as much as 30pc during the peak November-February winter months.

Crude steel output could fall by 31mn t-47mn t during the winter heating season, cutting iron ore use by 15.53mn t/month, said state-owned Chinese investment firm SDIC Essence Futures Research.

Production cuts could support steel prices, as the fall in steel supplies could outstrip a reduction in winter demand from the construction sector. Construction activity typically slows during the winter in north China, although not in the warmer south of the country. Restrictions on demolitions and earthwork in some northern China cities, including Beijing, could also affect construction steel demand.

Steel mills in areas that are not covered by the winter heating restrictions are unlikely to raise their output significantly, as most are already operating at around peak rates. This means the fall in iron ore demand from mills affected by the restrictions is unlikely to be made up by higher sales in other areas.

There is a strong possibility that the winter heating restrictions will also cut sintering, which is a major contributor to mills' emissions. China's largest steel-producing city Tangshan has ordered mills to reduce iron ore sintering by 50pc for an indefinite period starting from 25 September. Another key steelmaking city, Handan, has also asked several steel mills to reduce sintering.

Mills have built up iron ore inventories over the past few weeks and are now operating with around 25 days of stocks on average, meaning restocking demand is likely to be weak in the near future, said Cao Ying, ferrous analyst at SDIC Essence Futures Research. Iron ore prices could follow any move higher in steel prices, but weak fundamentals mean gains might not last, Cao said.