Australia's most lucrative export has extended its losses after plunging to a two-month low last week.

Iron ore, measured out of the Tianjin port in China, lost a further 2 per cent overnight on Friday, diving to $US90.10 a tonne, its lowest point since June 18.

The bulk metal has slumped 32.8 per cent this year, with fresh concerns about China's growth triggering the latest fall. Iron ore futures measured by the Dalian commodity exchange fell 0.2 per cent to 646 yuan ($US104.64) a tonne, just off the session's low of 641 yuan. It was the lowest level since the Dalian exchange began trading iron ore futures last October.

ANZ commodities analyst Mark Pervan attributed the metal's "sluggish" performance to a weaker-than-expected Chinese factory data, which was released last Thursday.

HSBC's Flash China Manufacturing PMI sputtered to a three-low in August, with a reading of 50.3, down from 51.7 in July.

Mr Pervan said weak sentiment about China's economy and "excess inventories" were holding back gains. But he said the metal was unlikely to dip much more.

"Support at the $US90 a tonne level looks reasonable, having bounced off that level in mid-June when port stocks were at record highs," Mr Pervan said.

"That said, strong restocking interest remains sidelined with domestic production not yet responding to weaker price."

Tougher credit conditions in China have also winded iron ore prices. Some trading firms are having difficulty securing letters of credit (LCs) from banks as China reins in lending to help spur consolidation in sectors plagued by overcapacity and prevent a surge in bad debts.

"In the first half of this year, LCs can be issued in 5-7 working days. Now we couldn't even get one in 14 days," said a trader in China's eastern Shandong province.

Chief Asia economist for Capital Economics, Mark Williams, said he expected overcapacity in many industrial sectors coupled with "cooling private investment in real estate would continue to put pressure on the Chinese economy this year.

"Policymakers have plenty of tools with which to offset this downward pressure should they need to," Mr Williams said.

"That said, the muted policy response to last month's weakness suggests that, for now at least, policymakers are willing to allow a gradual slowdown."

HSBC China chief economist Qu Hongbin said the fact that the PMI reading remained above 50 showed that China's economic recovery was continuing but its momentum has slowed.

"Therefore, industrial demand and investment activity growth will likely stay on a relatively subdued path," Mr Qu said.

"We think more policy support is needed to help consolidate the recovery. Both monetary and fiscal policy should remain accommodative until there is a more sustained rebound in economic activity." With Reuters