Reuters reported that iron ore prices edged back to a 2-1/2 month high as Chinese steel mills running low on inventories snapped up spot cargoes amid limited availability of high grade material.

Recent gains in Chinese steel prices had encouraged producers to restock on the raw material although further increases may be stalled by a weakening outlook for the economy.

Shanghai rebar futures came off an early high after data showed China's factory activity hit an 11 month low in July as new orders faltered and the job market weakened.

The most traded rebar contract for January delivery on the Shanghai Futures Exchange was unchanged at CNY 3,685 per tonne by the midday break after peaking at CNY 3,708.

According to data provider Steel Index, Benchmark 62% grade iron ore .IO62-CNI=SI rose 0.3% to USD 131.90 per tonne on Tuesday. First reached on July 18, that price was the highest since April 30.

An iron ore trader in Shanghai said that with steel production still high, some mills are still hungry for cargo and we've seen limited supply in the spot market especially for high grade material.

China's crude steel output stood at 2.083 million tonnes in the first 10 days of July down 4.5% from the previous 10 day period but still near the record pace of 2.193 million tonnes in May.

Global miner Rio Tinto sold 235,000 tonnes of 61% grade Australian Pilbara iron ore fines at AUD 133.68 per tonne in a tender on Tuesday up from AUD 133 last week.

A Shanghai based trader said that a midsize mill in China's Jiangsu province bought the cargo adding that the high premium over the benchmark 62% grade suggests scarcity of Pilbara material in the spot market.

He said that even now you can't find Pilbara fines in China's port stocks. But I still find the price too high and I'm not sure if it can be repeated. Chinese mills have been seeking immediately deliverable shipments from top supplier Australia, where recent heavy rains hit parts of its ore rich Pilbara region, leading to a huge backlog for China bound supply.