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Spot iron ore prices climbed more than 4 percent to above $55 a tonne on expectations China's anti-smog efforts ahead of a big September event would push mills to produce more before the curbs are imposed. Beijing will limit the number of vehicles on the streets and shut factories to ensure clean air during a commemoration of the 70th anniversary of the end of World War Two on September 3. The controls will be imposed from August 20.
The measures are expected to extend to areas surrounding Beijing including the top steel producing province of Hebei and neighbouring city of Tianjin, industry sources say, following a similar effort last year.
In November, China asked steel mills and other heavy, pollutive industries straddling Beijing to cut or suspend production ahead of and during the Asia-Pacific Economic Co-operation summit in the capital.
Ahead of the stoppage, spot iron ore jumped 4.5 percent to $55.30 a tonne on Monday, matching last week's peak, a four-week high, according to data compiled by The Steel Index.
"Some construction projects would like to speed up work and also mills would like to increase production before the stoppage takes effect in order to compensate for losses they would incur during that period," said a Shanghai-based trader.
"As much as 6 million tonnes of steel production may be forced to be shut, leading to a 10-million tonne reduction in iron ore demand," ANZ Bank analysts wrote on the latest anti-smog efforts.
But traders said the bounce in iron ore prices may be temporary with Chinese steel demand slowing along with the economy.
Shanghai steel futures hit a four-week high on Monday, although they have since traded lower, closing 0.1 percent weaker at 2,097 yuan ($340) a tonne on Tuesday.
"Once steel mills have resumed output, the market will enter negative territory again," said Xia Junyan, an analyst with Everbright Futures in Shanghai.
The January iron ore contract on the Dalian Commodity Exchange dropped 0.7 percent to end at 366.50 yuan a tonne.

Copyright Reuters, 2015

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