China's rebar steel futures rallied more than 3% to their highest in 10 months on Thursday amid potentially tighter supply as the government intensifies efforts to clean up its skies.

China's cabinet launched on Wednesday a new cross-ministerial leadership group, headed by vice-premier Han Zheng, to help draw up plans to tackle air pollution in northern regions.

"The high-class leadership group will certainly be a strong deterrent to environmental violations and may also restrain output at mills and mines," said Zhuo Guiqiu, an analyst at Jinrui Futures.

And Tangshan, China's biggest steelmaking city, has ordered steel mills, coke producers and utilities to cut output further for six weeks from July 20 until Aug 31 to improve its notorious air quality.

"With high environmental pressure, more regions may order their industrial plants to reduce emissions," said Zhuo.

The most-active October rebar contract on the Shanghai Futures Exchange jumped as much as 3.1% to 3,990 yuan ($599) a tonne, a level last seen in September 2017. The construction steel product closed up 2.7% at 3,976 yuan.

Spot steel prices edged up 0.2% to 4,320.36 yuan a tonne on Wednesday, data from consultancy Mysteel showed.

Daily crude steel output at major steel companies over June 21-30 reached 1.96-million tonnes, down 1.8% compared with mid-June, data from China's Iron & Steel Association (CISA) showed on Wednesday.

Steel inventory at mills dropped over the same period, falling 24,700 tonnes to 11.42-million tonnes, according to CISA data.

Prices for steelmaking ingredients also climbed. The most-traded September iron ore on the Dalian Commodity Exchange rose 2.1% to 466 yuan a tonne. Traders said increased profit margins at mills would support demand and prices of the raw material.

Coking coal gained 1.9% to 1 153.50 yuan a tonne and coke jumped 2.5% to 2 069.50 yuan.

Spot iron ore for delivery to China slipped 0.9% to $63.34 a tonne on Wednesday, according to Metal Bulletin.