* Iron ore prices climb to nearly 17-mth peak in early trade
* Prices buoyed by worries over supply after Brazil disaster
* Steel prices edge down ahead of Lunar New Year holiday
By Enrico Dela Cruz
MANILA, Jan 31 (Reuters) - China’s benchmark iron ore futures extended gains on Thursday to hit their highest in nearly 17 months, supported by concerns over supply disruptions in the wake of a mining disaster in Brazil.
But prices of steel and other steelmaking ingredients edged lower, with many market participants winding down ahead of the Lunar New Year break next week.
The most traded iron ore contract on the Dalian Commodity Exchange rose as much as 2.6 percent to 593 yuan ($88.36) a tonne shortly after the market opened, although it was up just 0.3 percent by 0203 GMT.
“People are still worried that the supply-side may still have some trouble because of Vale’s decision to cut production,” said a Shanghai-based trader.
“But there could be some profit-taking ahead of the Chinese New Year holiday next week because we don’t know what could happen during the market break.”
Brazil’s Vale SA, the world’s largest iron ore miner, on Tuesday said it would take up to 10 percent of its output offline as it decommissions a total of 19 dams over three years, including an additional 10 following last week’s deadly tailings dam burst.
Vale’s move would cut up to 40 million tonnes of iron ore production a year.
“I don’t think Australia has enough additional supply especially for the iron ore grade similar to the quality of Vale’s output,” said the trader in Shanghai.
The dam failure may knock Vale off its perch as the biggest iron ore exporter as the resulting rally in high-grade ore prices steers buyers towards rivals offering cheaper ore, according to analysts and traders.
Spot iron ore for delivery to China SH-CCN-IRNOR62 jumped 8.2 percent to $85.30 a tonne on Wednesday, according to SteelHome consultancy.
The most-active rebar contract on the Shanghai Futures Exchange was down 0.8 percent at 3,693 yuan a tonne. Hot rolled coil fell 1.0 percent to 3,588 yuan.
Dalian coking coal edged down 0.5 percent to 1,211 yuan a tonne, while coke slipped 0.7 percent to 2,031 yuan.
($1 = 6.7115 yuan)
Reporting by Enrico dela Cruz; Editing by Joseph Radford