Iron ore and steel futures in China advanced for a third session on Wednesday, hitting their strongest in three weeks amid sustained efforts by Beijing to tackle excess steel production capacity.

Iron ore on the Dalian Commodity Exchange closed 3.6 per cent higher at 601 yuan a tonne. It earlier touched 604.50 yuan, its loftiest since December 16.

Such ore is "not driven by fundamentals", said a Shanghai-based trader, citing ample supply of the raw material at ports.

Stocks of imported iron ore at major Chinese ports reached 116.7 million tonnes on January 6, according to SteelHome consultancy, the most since SteelHome began tracking it in 2004.

Iron ore for delivery to China's Qingdao port climbed 1.2 per cent to $US80.41 a tonne Wednesday, according to Metal Bulletin.

The drive since last year by the world's largest steel producer to reduce surplus capacity has helped Chinese steel prices snap a six-year losing streak, and they began 2017 higher as well.

Eliminating high-polluting steel

Apart from shutting outdated capacities, China will also eliminate by June 30 all production of a highly-polluting kind of low-end steel product to help tackle smog, state media reported.

"[Beijing has] elevated the policy to the equivalent of political mission," said Argonaut Securities analyst Helen Lau.

"In other words, if local government officials don't abide by this measure, they will risk losing their jobs," Lau said in a note.

The most-active rebar on the Shanghai Futures Exchange closed up 2.8 per cent at 3182 yuan ($US460) a tonne, after touching a three-week peak of 3202 yuan.

Annual production of low-quality rebar, or construction steel, in China was about 40-50 million tonnes. The closure of these producers implies that China's annual rebar output will be reduced by at least 20 per cent, said Lau. China produced about 200 million tonnes of rebar in 2016.