Iron ore is on course for a third straight week of declines after prices sagged to 6-1/2-month lows and may see further losses ahead with Chinese steel mills reluctant to replenish stockpiles ahead of the Lunar New Year break.

The price of the steelmaking raw material has fallen nearly 8 per cent since the start of the year amid slower steel demand in top consumer China. Chinese steel futures rose for a second day on Friday after falling to record lows earlier in the week although analysts and traders doubt the gains can be sustained.

Iron ore for immediate delivery into China’s Tianjin port rose 0.3 per cent to $US123.90 a tonne on Thursday, according to data compiler Steel Index.

That level was not too far above Tuesday’s $US123.20 which was the cheapest price for iron ore since July 8. It was down 2.7 per cent for the week so far.

"There might be another $US3-$US4 downside from the current price before the Lunar New Year because there has not been any stockpiling by the Chinese this year which is very unusual compared to the last five years,” said Judy Zhu, analyst at Standard Chartered in Shanghai. "But there’s a chance for prices to rebound after the holiday as steel mills re-enter the market.”

Leaner demand for steel and tighter access to credit have kept Chinese mills from boosting iron ore stocks ahead of the annual spring festival holiday which is slated between January 31 and February 6 this year.

The move by China’s central bank to inject funds into the banking system this week helped ease worries over liquidity, allowing some calm to return to iron ore and steel markets in recent days. But not all are convinced. “Traders are taking position ahead of the holiday. They are expecting credit to get better, of which I’m very doubtful,” said an iron ore trader in Singapore.