Chinese iron ore futures recouped early losses to extend their rally into a sixth straight session on Tuesday as steel prices stretched gains amid shrinking inventories and possible fresh output restrictions to curb air pollution.

Dalian Commodity Exchange's most-traded iron ore contract , with January 2020 expiry, ended up 0.6% at 636.50 yuan ($90.63) a tonne. It rose to 638 yuan earlier in the session, the highest since Oct. 28 this year.

Iron ore prices on the Singapore Exchange also rebounded, with the front-month December contract up 0.7% at $83.85 by 0804 GMT.

Richard Lu, a senior analyst at metals consultancy CRU's Beijing office, said the rally in steel prices remained supported by fundamentals in the physical market, with inventories falling and demand picking up.

He also said a new round of operating restrictions on Chinese steel mills was possible.

With China expecting unfavourable weather in winter this year that could bring more smog throughout its northern provinces, steel production restrictions will continue and could even intensify.

Steel output curbs and a recovery in steel demand this month, particularly in the construction sector, could lead to a further reduction in China's steel inventories, which have fallen to their lowest levels since January this year.

Iron ore's mild pullback followed news that China has started an investigation into the production capacity of its steel mills amid increasing worries over the rapid growth in output this year.

China's National Development and Reform Commission, the Ministry of Industry and Information Technology, and the National Bureau of Statistics are looking to verify steel mills' capacity, production and fixed-asset investments, according to a notice circulated online on Monday.

China, which accounts for about half of the world's steel supply, has eliminated more than 150 million tonnes of steel capacity over the past three years as part of its environmental crackdown and supply-side reforms.