The Ministry of Ecology and Environment said late on Wednesday that it expects a bout of severe smog to blanket regions in northern China, including top steelmaking province Hebei and coal mining hub Shanxi, from Jan. 10-14.
Some cities have issued smog alerts and asked heavy industry to restrict production, particularly the use of sinter plants, during the forecast pollution period.
Sintering is a highly pollutive process that melts iron ore before it is put into a blast furnace.
The most-active iron ore futures on the Dalian Commodity Exchange fell as much as 1.5 percent, their steepest drop since Dec. 25, before closing down 1.2 percent at 506.50 yuan ($74.61) a tonne.
Stocks of imported iron ore at Chinese ports had risen to 140.6 million tonnes, as of Jan. 7, their highest level in seven weeks, data compiled by SteelHome showed. [SH-TOT-IRONINV]
"Iron ore prices could be volatile in the near term due to restrictions on sintering plants," analysts at Huatai Futures said in a note.
"But there will still be some support for prices as steel mills are expected to replenish their stocks ahead of Chinese New Year in February, while shipments from overseas miners may fall in the coming weeks."
Among other steelmaking ingredients, coke closed down 1.4 percent in Dalian at 1,934.50 yuan a tonne, while coking coal shrugged off an earlier dip to eke out a 0.1 percent gain at 1,192 yuan a tonne.
Benchmark steel rebar prices on the Shanghai Futures Exchange closed down 0.3 percent at 3,514 yuan a tonne as investors remain cautious over trade talks between China and the United States.
China's commerce ministry said the three-day talks in Beijing this week were extensive and detailed, and established a foundation for the resolution of each others' concerns.
(Reporting by Muyu Xu and Tom Daly; editing by Richard Pullin and Subhranshu Sahu)
