Iron ore price surge not expected to last

The Port of Dampier.

The price of iron ore is trading at a four-week high as Chinese steel mills raise production.

Benchmark iron ore for immediate delivery to the port of Tianjin in China was last trading at $US56.40 a tonne, a 2.5 per cent rise.

Iron ore has now seen a resurgence of 13 per cent since July 13 when the commodity was trading at $US49.90.

Analysts say steel output in China has ramped up ahead of a crackdown on pollution which will force many mills to scale back production.

"I have heard there may have been some modest pickup in steel production ahead of enforced cutbacks in late August, early September for World War II end-commemoration in China," analyst Daniel Morgan said.

Many predict the Chinese government may even force the closure of some mills as it works to improve air quality before a major parade in Beijing in September.

This leaves iron ore at risk of more price shocks in the coming months.

"We could easily see sub-$US45 a ton as part of the normal volatility in this space, but I don't think prices would sustain levels below $US40," Morgan said. 

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