SINGAPORE, July 15 (Reuters) – Iron ore futures prices strengthened on Tuesday, with market sentiment buoyed by China's recent proposal of rules placing limitations on steelmaking capacity designed to rebalance supply and demand in the world's leading producer. The most-traded January iron ore contract on China's Dalian Commodity Exchange (DCE) traded 1.35% higher at 788 yuan ($110.63) a metric ton, as of 0309 GMT. The benchmark November iron ore on the Singapore Exchange was 0.05% higher at $105.75 a ton. Higher steel prices have created headroom for steel markets to increase purchases of iron ore and other steel-making raw materials, said analysts from ANZ. China on Friday had unveiled a proposal for a more stringent steel capacity swap plan. Under the new plan, the addition of new steel capacity in key areas, the transfer of steel capacity from non-key areas to key areas and capacity transfer among key areas would be strictly forbidden, China's Ministry of Industry and Information Technology said in a statement. The move comes as China grapples with weak domestic demand from a prolonged property market crisis, driving a supply-demand mismatch that's eroded steel margins. In addition, China's steelmaking hub Tangshan will impose a 30% restriction on blast furnace production for four days starting October 27 due to environmental protection requirements. The cap will affect approximately 91,000 tons of daily hot metal output at local steel mills, said Chinese financial information site Hexun Futures. Overseas crude steel demand remains relatively strong, but weakening domestic demand has made high iron ore valuations in the ferrous metals sector unsustainable, said Chinese broker Galaxy Futures. Other steelmaking ingredients on the DCE edged higher, with coking coal and coke up 0.32% and 0.03%, respectively. Steel benchmarks on the Shanghai Futures Exchange were mixed. Rebar increased 0.52%, and hot-rolled coil climbed 0.58%, while wire rod eased 0.68% and stainless steel lost 0.59%. ($1 = 7.1230 Chinese yuan) (Reporting by Lucas Liew; Editing by Ronojoy Mazumdar)
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