TOKYO -- Asian prices for iron ore and coking coal have plunged as an anticipated slowdown in Chinese steel production weakens demand, a trend that could provide wider margins for Japanese steelmakers enjoying brisk business for automotive applications.

The spot market price of Australian iron ore, a benchmark in Asia, has reached a three-month low of about $62 per ton, dropping over 20% from a recent peak in late August. Australian coking coal is hovering around $188 a ton, down more than 10% from a high in early September.

In an effort to cut excess capacity, China halted production of substandard steel products. At the same time, demand for steel rose amid a pickup in building construction as well as rail and other infrastructure projects. This led to higher production at blast-furnace and electric-furnace steelmakers, pushing up the price of raw materials for steel since summer.

The greater consumption of steel products quickly sent prices soaring. This appears to have dampened construction-related demand in September.

The price of most actively traded rebar contracts on the Shanghai Futures Exchange has declined roughly 10% from early September to some 3,600 yuan ($541) per ton. Steelmakers hampered by a drop in product prices slashed their procurement of high-priced raw materials.

China's efforts to allay air pollution are another factor. Steel production will be curbed in winter, when burning of heating coal is higher. Also, "to reduce emissions from construction machinery, civil engineering projects will be suspended in some parts of China during winter," said Eli Owaki, an economist at Nomura Securities.

Distributors have put the brakes on the procurement of iron ore and coking coal, anticipating that blast-furnace steelmakers will slow their purchases.

The Chinese Communist Party National Congress set for this month also heightens caution. Beijing front-loaded infrastructure investments leading up to the congress, so demand for steel products may drop off afterward, Owaki said.

Paul Gray of British research company Wood Mackenzie projects iron ore prices to fall further, averaging around $60 per ton in the fourth quarter of 2017.

Japanese blast-furnace steelmakers are enjoying brisk demand, centering on automotive steel. A continued drop in materials prices would improve their profitability.

Decline in Chinese steel production could lift margins for Japanese peers