Analysts said that iron ore prices have extended their recovery from a slump in May but further gains may be in doubt. The bulk commodity rallied 4.2% to USD 116.60 per tonne overnight after plunging 17% in May.

Mr Mark Pervan Global head of commodity research at ANZ said that “What we’re seeing at the moment is a bit of short covering recovery in steel prices in China and a relief rally also now occurring in iron ore.”

Shares of Australia's major miners failed to capitalize on the rally with BHP slipping 1.4% to USD 33.79 and rival Rio Tinto dropping 1.4% to USD 54.36 amid a broad based sell off on the share market. However Fortescue, whose shares are more susceptible to fluctuations in the iron ore price jumped 2.6% to USD 3.55.

Baosteel said that lower growth in steel demand would add pressure to iron ore prices. Baosteel sees China's steel production rising just 1% to 2% in 2013 from last year's 716.5 million tonnes.

Mr Christian Lelong commodities analyst of Goldman Sachs said that he remained bullish in the short term for iron ore, saying support would be provided by Chinese high cost producers. Our forecast for the second half of this year is between USD 130 per tonne to USD 135 per tonne. We would expect the current destocking cycle to eventually reverse and for iron ore prices to make up most of the losses they’ve had.

Mr Lelong said that the long term could price could be more painful than expected. In a market where low prices have to force out marginal production ex-China we expect prices to bottom at USD 75 before stabilizing in the USD 80 to USD 85 range from 2015 onwards.’