BEIJING: China’s benchmark iron ore futures dropped on Wednesday, as the country’s environmental policy implementation weighed on demand for the steelmaking ingredient, while traders were shifting positions for most-traded contract ahead of May delivery.

The environment regulator in China’s top steelmaking city Tangshan recently sent 100 people to 25 local mills to ensure the steel plants follow production-control policies.

Analysts with Sinosteel Futures also noticed that the expectation of strict output controls, as well as lenient supply and demand, have been reflected on prices for September iron ore contract.

Positions for the most-traded iron ore futures on the Dalian Commodity Exchange, for May delivery, fell sharply by 40,517 lots on Tuesday, while the September contract gained 9,543 lots.

“The change of most active iron ore contract will be completed soon,” Sinosteel Futures said in a note, adding that backwardation with September contract is relatively big at 130 yuan per tonne.

Prices for May iron ore contract closed down 1.4% to 1,080 yuan ($164.70) a tonne and the September contract fell 3% to 931 yuan per tonne.

Spot prices of iron ore with 62% Fe content for delivery to China, compiled by SteelHome consultancy, dropped by $2 to $166 a tonne on Tuesday.

Other steelmaking ingredients were mixed, with Dalian coking coal slipping 0.2% to 1,659 yuan a tonne, while coke jumped 2.5% to 2,334 yuan per tonne.

Steel rebar on the Shanghai Futures Exchange, used in construction activities, slipped 0.6% to 4,935 yuan per tonne.

Hot-rolled coil, used in cars and home appliances, increased 0.5% to 5,383 yuan on upbeat economic data.

China’s official manufacturing PMI in March expanded at the quickest pace in three months, data from statistics bureau showed, and export orders returned to growth on improving foreign demand.

Shanghai stainless steel futures fell 1.4% to 14,415 yuan a tonne.