Iron ore capped the biggest monthly advance in almost two years as port stockpiles in China headed for a record monthly contraction.

Ore with 62 per cent content delivered to Qingdao, which bottomed at a decade-low $US47.08 a dry metric ton on April 2, was at $US61.85 on Friday after losing 0.8 per cent, according to Metal Bulletin Ltd. Prices climbed 10 per cent in May, the biggest gain since July 2013, after rallying 9.4 per cent in April. The consecutive monthly increase, which was the first since July, pared losses this year to 13 per cent.

Iron ore swung from a bear to bull market this year as rising low-cost output from the top producers including Rio Tinto Group spurred the closure of smaller mines, including in China. Lower output in the biggest user is boosting demand for seaborne ore, according to Australia & New Zealand Banking Group. Goldman Sachs Group said recent gains won't last amid a glut, noting that the port stockpiles fell after shipments from Australia and Brazil missed expectations in April.

"The drop below $US50 a ton was unsustainable," Gerard Burg, senior Asia economist at National Australia Bank in Melbourne, said before Friday's price was released. "Too many producers globally were unprofitable at this level, leading to a cutback in supply, most notably in China."

Iron ore's surge this month compares with the 3.2 per cent drop in the Bloomberg Commodity Index. While the gauge doesn't include iron ore among the raw materials that it tracks, it's outperformed all of the members.

Inventories at Chinese ports fell 2.2 per cent to 86.7 million tons last week, the lowest level since December 2013, according to Shanghai Steelhome Information Technology Co. So far this month, the stockpiles contracted 11 per cent, the most on record in data that go back to 2010.

Since bottoming in April, iron ore rallied 31 per cent. The price should have a strong floor at about $US60 after a period of volatility, Pacific Investment Management Co said in April.

Analysts from Goldman Sachs to Citigroup said that there will probably be renewed declines as the world's biggest producers add further supply and demand growth stalls.

The rally offers an opportunity to bet against the commodity, Goldman Sachs said on May 11. The gains came as port stockpiles in China fell after lower-than-expected exports in April, Goldman said Wednesday, describing spot supply as tight.

Exports from Australia's Port Hedland to China fell 3.6 per cent to 30.1 million tons in April from March, the lowest level since November. Total shipments from the world's biggest bulk-export terminal fell 3.4 per cent to 35.4 million tons last month, according to data from the Pilbara Ports Authority.

"On the supply side there has actually been quite a lot of disruption through April in loadings from WA, particularly from Rio Tinto," Daniel Morgan, a Sydney-based analyst at UBS Group, said by email, referring to Western Australia by its initials. "They should be back at full run-rate now."

Citigroup cut its long-run price outlook 32 per cent to $US55 as demand will drop over the 2020s, according to a report Wednesday. Prices will remain under pressure as expansions of low-cost supply offset cuts from smaller miners, Bill Marmion, Western Australia's mines minister, told Bloomberg.

China's iron ore output may drop to 237 million tons this year after shrinking 19 per cent last year to 292 million tons, UBS estimates. Prices will average $US50 this year, UBS said in a report this month.