The price of iron ore is trading at a four-month high but Goldman Sachs has warned the market to prepare for another fall.
Benchmark iron ore for immediate delivery to the port of Tianjin in China was last trading at $US63.80 per tonne.
This is its highest price since February and a 35 per cent increase on the 10-year low the commodity hit in mid-April of $US46.70.
The price rally has provided some breathing space to junior miners which had been struggling to break even at low prices due to higher operating costs.
But analyst Christian Lelong of Goldman Sachs said the long-term market outlook remains unchanged.
Lelong said Chinese steel consumption is contracting. He expects seaborne iron ore demand to peak next year, turning the iron ore market into a “zero-sum game”.
“In our view, prices must fall below the cash cost of marginal producers in order to force the mine closures required to balance the market," Lelong said.
“The current period of US$60+ prices is self-defeating because it merely increases the amount of mining capacity that will have to close over the period to 2018.”
The prediction is that the price of iron ore will fall below $US50 per tonne over the medium term.