Reuters reported that spot iron ore prices held near 5 month highs at just below USD 140 per tonne supported by brisk steel production in top market China as mills brace for the peak consumption season.

According to industry group China Iron and Steel Association, China's daily crude steel output averaged 2.14 million tonnes in the first 10 days of August up almost 3% from the previous 10 day period.

It said that should support demand for iron ore as Chinese mills ensure they have enough of the raw material to keep pace with steel demand anticipated to strengthen during the seasonally brisk September and October period when most construction activity resumes due to better weather.

Indications of a stabilising Chinese economy and Beijing's commitment to boost investment in urban infrastructure and railways are also pushing steelmakers to keep output high.

Mr Joel Crane VP of research at Morgan Stanley said that "Most people had expected China's economy to continue to soften and that did not happen. Nor did it grow really fast but it's not growing at the exceptionally low rate that people were expecting."

Mr Crane said that "The issue here is a demand surprise not a supply surprise. If anyone is surprised why the iron ore price is high, it's not because they got supply wrong, it's because they got demand wrong."

Market watchers had earlier expected an onslaught in fresh seaborne supply of iron ore this year to trump demand from China whose economy had shown signs of a slowdown after years of heady growth.

According to the latest data from compiler Steel Index, ore with 62% iron content .IO62-CNI=SI, the industry benchmark, was off 20 cents at USD 139 per tonne on Tuesday. That price is not far off last week's peak of USD 142.80, the highest since mid March. Despite Tuesday's modest pullback, iron ore remains 7% up for the month.

A Shanghai based iron ore trader said that some buyers were hesitant to take more cargo after the recent rally in prices but the uptrend looks intact. There might be some small adjustment in prices but the upward trend should resume very soon. The weather in China is getting better so seasonal steel demand will return.