Iron ore held firm but remained close to a five-month low because of concerns about weak demand from Chinese steel mills.

Benchmark prices, with 62 per cent iron content and for immediate delivery to China, firmed 0.2 per cent to $130.90 a tonne, according to Steel Index data. A relatively well-received tender for 170,000 tonnes of Australian iron ore supported the price.

The ore, a key ingredient in steelmaking, has fallen more than 2 per cent in the past week as weaker steel prices in China and anti-pollution regulations curb demand.

Steel production dipped below 2m tonnes a day at the end of last month for the first time since last February, while iron ore stocks at large Chinese mills have risen to 21.5 days of consumption, the highest level in two years.

"Iron ore import activity is on hold following strong increases that have brought stockpiles at major Chinese ports at 82m tonnes versus a 71m average for 2013”, said analysts at Morgan Stanley in a report.

"At the same time, crude steel output has come off as we are in a slow season . . . the possible effect of pollution control measures.”

China buys more than two-thirds of the world’s seaborne iron ore, and so is crucial for the profitability of large mining groups and global steelmakers including ArcelorMittal and Baosteel of China.

Shares in some of the world’s biggest iron ore miners, which are set to increase production of the commodity this year, weakened last week on worries about a slowing imports and rising stockpiles. Australia miners BHP Billiton and Rio Tinto fell 4.5 per cent and 7.2 per cent respectively, while Vale declined 8.5 per cent.

"Steel and iron ore markets in China remain weak with demand dropping due to persistently high borrowing costs; lower winter construction demand; nervousness over property market changes; and upcoming holidays,” said Standard Bank analyst Melinda Moore.

The slowdown in import activity has been reflected in global shipping markets, with rates and charters for Capesize vessels, which can carry 150,000 tones, falling sharply.

"Capesize spot chartering has dropped significantly during the last four weeks with fixtures declining to 72 vessels compared to all time highs of 161 vessels in the previous fours weeks”, said Morgan Stanley.

Seasonal weather disruptions have weighed on Brazilian and Australian iron ore exports, and thermal coal shipments from Colombia have fallen following the introduction of new environmental regulations, adding to the decline.

Many analysts say the iron ore price could soon dip below $130 a tonne and do not see demand picking up until after Chinese New Year.

"Current prices have encouraged some restocking activity from smaller mills but we suspect prices may fall towards $125 a tonne in the short term, as weaker Chinese construction activity and high at port inventories weigh on prices,” said analysts ANZ.