Chinese iron ore futures fell more than 6 percent on Tuesday, as steel prices fell by about the same extent after hitting a 31-month high in a rally that prompted exchanges to again step in to tame the surging market.
A reduction in China's steel capacity along with a push to spend more on infrastructure has fueled a 90 percent spike this year in prices of construction steel product rebar.
The most-traded rebar for May delivery on the Shanghai Futures Exchange rose as far as 3,348 yuan ($486) a ton, its loftiest since April 2014. But it closed at 3,062 yuan, down 6.7 percent from Monday's settlement.
May iron ore on the Dalian Commodity Exchange fell 6.3 percent to end at 577 yuan per ton.
Both commodities gained nearly 5 percent on Tuesday in a rally that spilled over to zinc, used to galvanize steel and which raced to a nine-year high on Monday.
In China's latest move to tame speculative trading and surging prices, the Shanghai exchange limited the size of positions taken by non-members in rebar futures to 8,000 lots from 10,000 lots starting on Tuesday.
On Monday, the Dalian exchange increased the margin requirement for iron ore futures to 10 percent.
The price of iron ore could weaken again next year given there is no shortage in available supply, said CLSA analyst Daniel Meng.
"Iron ore demand would become slightly higher because steel demand is strong. But on the supply side, you continue to have new low-cost capacity this year and into next year," said Meng.
The slide in futures could pull spot iron ore back below $80 a ton, a level it breached on Monday for the first time since October 2014.Iron ore for delivery to China's Qingdao port rose 1.5 percent to $80.83 a ton on Monday, according to Metal Bulletin.Also on Tuesday, coking coal on Dalian dropped 5.5 percent and coke slipped 4.6 percent.