The iron ore spot price hit a low of $US38.30 per tonne last month, but staged a remarkable comeback over the Christmas and new year period, rallying over 11 days to reach $44.37/t last week.

ANZ attributed the rise to temporary tightness in the Chinese steel market and analysts expect inventory levels to rebound strongly next month, once steel mills return to full production after Chinese New Year.

“Weak domestic demand and rising trade barriers will further aggravate the demand situation and reduce the buying interest in iron ore,” analysts said.

As a result, ANZ expects the iron ore price to average just $35-40/t this quarter.

“However, the probability of prices breaking below this range in the short term is rising daily,” it warned.

ANZ expects iron ore fundamentals to remain poor this year, with Chinese steel demand set to fall by a further 2.8% after a 4.3% decline last year.

“The huge supply response triggered from extraordinary price levels in 2010-11 will still be in process, although past the biggest gains made in 2013-14,” analysts said.

In saying that, the commencement of shipments from the Roy Hill iron ore project (Australia) saw exports at Port Hedland rise in December. This resulted in Chinese port inventories pushing up nearly 11Mt to 92.4Mt.

ANZ expects Chinese steel mills to remain cautious after Chinese New Year.

Singapore Exchange surveyed 300 commodity market participants last month, with 70% expecting a further drop in steel demand this year.

The Australian government expects iron ore to average $41.30/t this year.

It was sitting at $41.31/t overnight.