In its report on junior and mid-tier iron ore companies for the March quarter, RCR iron ore analyst Trent Allen noted the ore’s contract price gained ground for the June quarter to around $170/t for Pilbara fines at 62% iron FOB.

“The iron ore contract price pushed higher for the June quarter, up 20 per cent on a CFR basis and even higher, say 25 percent, on an FOB basis,” he said.

“This was due to the spot market, to which contracts are indexed, reaching a record high in February of about $US191 per tonne CFR for imports to China.”

According to the report, the price gain was triggered by a jump in US dollar operating costs for Australian and Brazilian producers, iron ore supply interruptions in India, seasonal restocking by steel mills, and anticipation of tightness on the supply side ahead of mine capacity increases beyond the second half of 2012.

However, Allen also noted the spot market for iron ore fines fell back to $175.92/t at the end of March while September quarter contract price could dip to around $162/t FOB.

“The question is will steelmakers be able to absorb another rise when the September contract is set?”

“The prices per tonne of some finished materials are below pre-[global financial crisis] highs, for example, hot-rolled coil at $723 per tonne down 30.7 per cent relative to July 2008.

“However, the average iron ore spot price through March, again for 62 per cent iron imports to China, suggests a contract price fall of around five per cent could be on the cards, unless the market picks up strongly through April and May.”

Despite this, he believes most iron ore producers can still expect strong profit margins in the mid-term, excluding the risk of an unexpected stall in the Chinese economy.

“In the meantime, China is boosting internal ore production and investing globally in iron ore projects, as an alternative to paying high import prices,” he added.

China’s iron ore output in 2010 was 1054 million tonnes, up 19.9% on 2009, while imports were around 623Mt, a 3.7% gain on 2009.

RCR believes China is avoiding higher-priced imports by boosting local production and is investing in iron ore exploration and development outside China, which is seen as a cheaper mid-term strategy than paying the current high market prices.

In terms of Australian-listed iron ore stocks, a basket of 59 iron ore juniors outperformed the S&P/ASX 200 index over the last year. The companies share prices gained by an average 53%, driven by market recovery and higher iron ore prices.

However, share prices have dipped 5% during March following the earthquake and tsunami in Japan.