Spot iron ore prices rose further away from last week's seven-month lows as traders bet on more price increases and Chinese steel mills replenished inventories.
Recent sharp gains in the price of spot steel billet in China, suggesting demand in the world's top steel consumer is on the mend, have fueled gains for iron ore. But plentiful spot supplies and rising stockpiles of the raw material across Chinese ports could temper further price increases.
Iron ore for immediate delivery to China .IO62-CNI=SI climbed nearly 1 percent to $124.40 a tonne on Monday, according to data compiler Steel Index, rising for a fourth straight day.
Buying interest for spot iron ore cargoes picked up after the price fell to $120 on Feb. 11, the lowest since July 2 last year. Buyers took their cue from rising prices of spot billet in the main Tangshan area, which have rebounded to 2,920 yuan ($480) a tonne on Monday from a low of 2,790 yuan earlier this month.
"Traders and producers are expecting even better (iron ore) prices in coming weeks as construction activity in China gradually picks up," Australia and New Zealand Banking Group said in a note.
More market participants were back this week after the Lunar New Year break in China, but some think the price rally may be short-lived.
"The buying interest is not that strong and there's still a lot of supply in the market," said a trader in Shanghai.
"While there's a lot of movement in seaborne prices, the prices of port stocks have not changed much."
BHP Billiton , the world's No. 3 producer of iron ore, said new iron ore supply from the likes of BHP and Rio Tinto would outstrip demand growth in China and elsewhere.
"Towards the end of the calendar year, the very strong growth in supply is more than enough to create a bit of an excess and therefore to drive price lower," BHP Chief Executive Andrew Mackenzie told analysts on Tuesday.
Iron ore prices are set to test five-year lows this year on account of rising supply, based on a Reuters poll of analysts released in January.
Top miner Vale is holding another tender on Tuesday for a 144,000-tonne shipment of Brazilian Carajas iron ore fines with iron content of 63.88 percent, traders said.
Stockpiles of imported iron ore at China's 34 major ports rose to a record 100.86 million tonnes as of Feb. 14, up almost 5 million tonnes from the previous week, according to local Chinese media.
Shanghai steel futures gave up early gains to end lower on Tuesday after rising more than 1 percent in the previous session. The most-traded rebar for May delivery on the Shanghai Futures Exchange slipped 0.3 percent to 3,428 yuan a tonne.
At the Dalian Commodity Exchange, iron ore for delivery in May fell 0.9 percent to settle at 860 yuan a tonne after a three-day runup.