Supply concerns, however, pushed stainless steel higher to mark its biggest monthly gain on the Shanghai Futures Exchange since trading of contracts began in 2019.
Iron ore on China's Dalian Commodity Exchange closed daytime trading 8.1% lower at 1,027 yuan ($158.95) a tonne, with its monthly loss of nearly 8% the steepest since February 2020.
The steelmaking ingredient slumped 7.7% to $175.95 a tonne on the Singapore Exchange by 0715 GMT.
Spot iron ore traded below $200 a tonne on Thursday for the first time since May 28, SteelHome consultancy data showed.
"Prices fell as iron ore demand weakens in the face of policy to reduce China's steel output as a means to cut emissions," Commonwealth Bank of Australia commodities analyst Vivek Dhar said.
China has asked mills to limit this year's output to no more than the 2020 volume, after first-half production grew nearly 12% compared with a year earlier.
China's steel output curbs fuelled speculations that Beijing could be trying to shoot two birds with one stone, as the policy could also help reduce its dependence on Australian iron ore.
Dhar described it as a "very challenging" goal for the world's top steel producer, which depends on Australia for more than 60% of its iron ore imports.
Ties between the two countries have worsened after Australia called for an independent investigation into the origins of the novel coronavirus, irking China which imposed trade measures that hit Australian goods including coal.
Shanghai rebar rose 1%, while both hot rolled coil and stainless steel climbed 3.1%.
Dalian coking coal jumped 4.4%, but coke slipped 0.1%.
(Reporting by Enrico Dela Cruz in Manila, additional reporting by Sonali Paul in Melbourne, Editing by Sherry Jacob-Phillips and Uttaresh.V)
By Enrico Dela Cruz