The price of iron ore is trading at four-month highs.
After a tumultuous year, which saw the price of iron ore drop to all-time lows of $US46 per tonne in April, the commodity has made a recovery.
Benchmark iron ore for immediate delivery to the port of Tianjin in China was last trading at $US65.40 per tonne.
This means iron ore have risen more than 40 per cent above its April low.
The price rebound comes despite data out of China showing the country’s steel output fell 1.7 per cent in May from 12 months earlier.
Reuters reports steel production reached 69.95 million tonnes in May, which brings output in January-May to 340.17 million tonnes.
This is 1.6 per cent lower than the same period last year.
“The recent rise in the spot price is associated with a decline in port inventories and that’s pretty much telling you that imports are soft, so it’s a supply story,” said Justin Smirk, a senior economist at Westpac.
“Falling inventories, falling imports, falling domestic production — that’s a good reason why prices are up.”
Most analysts agree that the price rally will be short-lived – predicting the commodity to dip below $US50 per tonne over the next six months.
On Monday, Goldman Sachs said the current price rise was self-defeating, and just meant more high-cost producers would have to close over the period to 2018.
‘Chinese steel consumption is contracting and we expect seaborne iron ore demand to peak next year, turning the iron ore market into a zero-sum game,” analysts said.