Iron ore prices fell on Thursday as China’s steel futures inched lower, retreating from record highs touched in the previous session.

Benchmark 62% Fe fines imported into Northern China (CFR Qingdao) were changing hands for $173.10 a tonne, down 0.3% from the previous trade, according to Fastmarkets MB, with the Dalian Commodity Exchange benchmark down 0.6%.
Analysts, however, said moves to rein in steel output in China – the world’s top producer and exporter of the construction and manufacturing material – should keep any pullback in prices in check.

As improved steel profit margins prompted Chinese mills to ramp up output, Sinosteel Futures analysts said “a high level of destocking must be maintained to help support high prices.”

Robust domestic demand fuelled a rally in steel prices recently, along with concerns over output curbs as China rolls out new policies focusing on tighter environmental control that limits production capacities of mills.

Several heavy-polluting mills in China’s top steelmaking city, Tangshan have been subjected to more severe production restrictions that could also be imposed in other areas.

“This is the first time the Chinese government is looking at the steel industry from an environmental angle on a nationwide basis,” J.P. Morgan analysts said in a note.