China sees a sharp increase in metallurgical raw materials

Chinese iron ore futures rose more than 5 percent on Friday, boosted by rising steel prices in anticipation of larger production cuts from the world's largest steelmaker as China intensifies its war on smog over the winter.

However, traders question whether the price strength of steelmaking raw materials - iron ore and coking coal - will remain strong, and demand is expected to be weakened as steel production is limited.

“Market participants believed the authorities could impose stricter restrictions on the sintering process and even steel production in China in the coming days, as smog levels deteriorate in northern China,” Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

The most active iron ore contract for January delivery on the Dalian Mercantile Exchange closed 5.4 percent higher at 469 yuan ($ 71) a tonne after it was down 3.4 percent on Thursday. Coking coal rose 2.9 percent. The most traded January rebar contract on the Shanghai Futures Exchange rose 4.3 percent to 3,776 yuan a tonne.

China's steel industry cut production 3.7 percent in September from a record high in the previous month, as mill production slashed production in line with the Beijing campaign and analysts forecast further declines as winter restrictions are imposed.

“In the long term, iron ore prices will remain weak because production controls will end next March,” said an iron ore trader in Beijing.