China has widened a ban on BHP iron-ore for the second time in two weeks, escalating a months-long contract dispute with the world's third-largest supplier of the key steelmaking ingredient.

China Mineral Resources Group (CMRG), the State-run iron ore buyer, informed domestic steel mills and traders on Thursday that, starting late next week, they would be prohibited from taking delivery of Newman fines, a popular BHP iron-ore stored at ports, three sources with knowledge of the matter told Reuters.

Customers will be allowed to take delivery of cargoes within the next five working days, according to two of the sources, who spoke on condition of anonymity.

"We previously had the feeling that the day (of restrictions on more BHP products) would come sooner or later and to some extent were waiting for it, so not a surprise," said one of the sources.

BHP declined to comment and CMRG did not immediately respond to a Reuters request for comment.

Beijing has progressively tightened restrictions on local steel mills and traders buying BHP iron-ore over the past six months as it negotiates the terms of BHP's 2026 supply contract.

China banned purchases of Jimblebar fines, another type of iron-ore, in September, followed by the Jinbao product in November.

Traders were told last week to buy fewer new cargoes of Newman fines, Newman lumps and Mac fines, though the directive allowed for the purchase of those grades of iron ore already stored at ports.

This week's ban narrows permitted buying to stocks of BHP's Newman lumps and Mac fines already in port storage.

SPILL-OVER EFFECT
Traders are trying to dump those cargoes as they fear more restrictions will be announced soon that make the remaining grades impossible to sell.

"We are planning to sell off all Newman fines at ports in the next few days and will get off Mac fines as well, even if it's not under this wave of restriction now, as you do not know when they would prohibit you from taking delivery of Mac fines," said another source.

Benchmark April iron-ore prices on the Singapore Exchange rose by more than 4% to $108.95 in afternoon trading on Thursday, hitting their highest level since January.

Portside stocks of Newman fines stood at 3.17-million tons as of this week, up 55% from October, according to another trader.