Panic appears to have gripped shorters in the iron ore sector as the commodity extends its staggering two-and-a-half-week run and again flirts with the $US60 a tonne mark.

At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US58.70 a tonne, up 3 per cent from its prior close of $US57.00 a tonne.

The commodity has now enjoyed eight straight positive sessions.

The developments bode well for another bounce in the beaten-down stock prices of local iron ore miners such as BC Iron, Mt Gibson Iron and Fortescue Metals after a strong run over the past fortnight.

Fortescue, which has been a favourite “short” of traders over the past 12 months, celebrated its best day of trade in three years yesterday, surging 16 per cent to a two-month high. It’s now 31 per cent above the post-crisis trough it sunk to on April 13 and can turn a profit at current prices given a break-even cost in the low $US50s.

Meanwhile, the stock of BC Iron has doubled in a week, while Mt Gibson’s recovery has been a more sedate 15 per cent.

The bounce in mining stocks is a direct response to a 25 per cent jump in the iron ore price from the 10-year low of $US46.70 a tonne it reached earlier this month.

The commodity’s price has been climbing on the back of tentative signs of supply cutbacks, rising oil prices and stimulus in China, with the moves exacerbated as the gloomy rhetoric around the commodity for much of the year ensured heavy short demand.

Indeed, money managers and other speculators had doubled their short bets on iron ore between the start of the year and early April, with the surprise recovery catching most unawares and helping drive a short-covering rally that has led the commodity to its highest mark since March 6.

Just two weeks’ ago a wave of analyst downgrades had many predicting the price to dip into the $US30s, with many now instead wondering if the $US46.70 a tonne price will represent a floor in the 18-month bear market.

Analysts still remain sceptical about the ability of the commodity to hold onto the recent gains, however, given Vale, BHP Billiton, Rio Tinto and Gina Rinehart’s Hancock Prospecting are expected to tip a few hundred millions tonnes of supply into the market in the near-term at a time when demand could be threatened by weakness in the Chinese economy.

While doubts still linger, the recovery is welcome news for Atlas Iron as the firm proceeds with last-ditch talks with creditors to stave off receivership. A rebound of over 20 per cent just might be enough for creditors to allow the embattled firm an opportunity to bounce back.