October 18, 2017 / 2:39 AM / a month ago

China iron ore edges higher, but gains look at risk

* Firm demand for high-grade iron ore in China

* Consumption may however weaken as mills curb output

By Manolo Serapio Jr

MANILA, Oct 18 (Reuters) - Iron ore futures in China rose more than 1 percent on Wednesday, underpinned by firm demand for high-grade material in the world’s top importer although there are concerns consumption could slip in coming months as steel mills curb output.

Steel producers in the northern part of China are scheduled to reduce production as part of the government’s campaign to fight pollution during winter. Some mills, including those in the top steelmaking city of Tangshan, have already cut output last week, more than a month ahead of schedule.

For the rest of the mills operating, demand remains for high-quality iron ore from top supplier Australia, said a Shanghai-based iron ore trader.

“We have seen the discount for medium- to low-grade iron ore cargoes still quite big,” he said, adding that one foreign miner was offering more than 40 percent discount from the benchmark rate for its low-iron material.

The most-traded iron ore on the Dalian Commodity Exchange was up 1.3 percent at 462.50 yuan ($70) a tonne by 0225 GMT, after sliding 1.6 percent on Tuesday.

China’s iron ore imports surged to a record 103 million tonnes in September.

But consumption of the raw material could weaken as northern Chinese mills reduce steel output by up to half over winter or for four months from November to March as Beijing battles smog.

Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB slipped 0.3 percent to $62.72 a tonne on Tuesday, according to Metal Bulletin.

Market participants are also watching the Communist Party congress with President Xi Jinping saying China’s campaign against corruption has achieved “overwhelming momentum” as the twice-a-decade event kicked off on Wednesday.

The market will also be looking for signs as to how long the current anti-pollution campaign will last, INTL FCStone analyst Edward Meir said.

“If government authorities do not commit to indefinite cuts so as to make a real dent in pollution, or more effectively, commit to a reform agenda that could sideline excessive production, we very well could see many metals come off their highs going into Q1 of 2018,” Meir said in a note.

The most active rebar on the Shanghai Futures Exchange dropped 0.8 percent to 3,743 yuan a tonne.

$1 = 6.6072 Chinese yuan Reporting by Manolo Serapio Jr.; Editing by Biju Dwarakanath

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