* Tangshan extended its summer production cuts by a month
* Higher steel prices support iron ore prices rally - trader
* Iron ore inventory fell to an eight-month low
BEIJING, Sept 6 (Reuters) - Chinese iron ore futures rose more than 2.5 percent on Thursday despite concerns that consumption of the steelmaking commodity would be reduced as the country’s biggest steelmaking city extended its production cuts.
Output curbs at steel mills will typically limit the demand for raw steelmaking ingredients, which could hurt iron ore prices.
The city of Tangshan said on Wednesday it will continue to carry out anti-pollution measures in September by ordering steel mills, coke producers and power generators to shut part of their production.
The city imposed a six-week drive between July 20 and Aug. 31 to almost halve the production capacity on some sintering machines and blast furnaces.
However, the most-active iron ore contract on the Dalian Commodity Exchange traded 1.8 percent higher at 495 yuan ($72.40) a tonne at 0330 GMT. Earlier in the session, the contract hit 499 yuan a tonne, a level last seen on Aug. 22.
“The rally on iron ore prices is supported by higher steel prices. Market is expected to see even fatter profit margins at mills amid stepped-up environmental measures. Therefore, steel mills would be willing to pay more for raw materials,” said a Shanghai-based iron ore trader.
Average profits margin at Chinese steel mills has been hovering at about 1,000 yuan a tonne in the past four months, according to Huatai Futures.
Stockpiles of the imported steelmaking ingredient at Chinese ports dropped to 149.2 million tonnes last week, the lowest level in eight months, data compiled by SteelHome showed.
“With falling inventory, traders are not in rush to sell iron ore at this moment,” said the Shanghai-based trader.
Dalian coking coal contract for January delivery jumped as much as 4 percent to 1,286 yuan a tonne on Thursday, buoyed by firm physical prices amid environmental inspections in major coal mining hub of Shanxi and Shaanxi province.
Coke prices rose 0.6 percent to 2,407 yuan a tonne.
Benchmark Shanghai rebar futures climbed 1.2 percent to 4,137 yuan a tonne. ($1 = 6.8370 Chinese yuan) (Reporting by Muyu Xu and Josephine Mason, Editing by Sherry Jacob-Phillips)