As iron ore prices slumped to the lowest level since the financial crisis in March, Andrew Forrest, the chairman and founder of Australian miner Fortescue Metals Group, floated a controversial idea at a business dinner in Shanghai.

The Perth-born entrepreneur, known as “Twiggy” to many in the industry, said the top producers of the steelmaking ingredient should agree to an output cap, effectively inviting the world’s largest publicly listed miners to form an Opec-style cartel.

While Mr Forrest’s call was quickly panned by rivals and damned as “concerning” by Australia’s competition regulators, his suggestion illustrates how halving prices in the past 18 months has badly shaken the industry that rode the decade-long commodities boom in China.

The outlook remains bleak, most analysts and traders say, with fresh supplies on the horizon later this year and in 2016. But some think Mr Forrest’s tub-thumping interventions and a subsequent call for a parliamentary inquiry into the expansion plans of rivals BHP Billiton and Rio Tinto, may have marked the bottom of the market, for now.

“If big companies don’t play with the iron ore price by making aggressive forward looking statements designed to depress or elevate prices . . .  I think we will see a price that oscillates around current levels,” Mr Forrest said in an interview with the Financial Times on Wednesday.

Since April, the price of benchmark ore for immediate delivery into China has rallied by about a third from $46 a tonne to $65 earlier this month. The bounce has left many investment bank analysts wondering if they had been caught in a race to the bottom, as one after another slashed their price forecasts earlier this year.

Certainly, the recovery has surprised many industry watchers, given subdued demand and falling steel prices in China. Shanghai Rebar futures — a steel product widely used in construction — hit a record low on Tuesday. But it can be simply explained, say analysts.

One trigger for the rally appears to have been a late buying spree by Chinese steel producers. Morgan Stanley analyst Tom Price, who was less bearish on iron ore than most analysts, says that while demand from key markets — property and infrastructure — has remained weak, steel mills still wanted to cash in on the peak summer demand period for their products.

China’s Steel mills typically replenish stock of iron between February and May but because of the uncertain outlook and a tight credit market they waited until the last moment this year.

“That’s what has driven the market — a delayed restocking event,” says Mr Price. “The mills have no choice. If they don’t produce more steel to meet what’s left of the seasonal peak in demand, they will have to shut down operations,” he adds.

And as steel production started to recover, shipments from Australia, the world’s largest exporter of iron ore, wobbled.

Goldman Sachs believes there was a significant drop in Australian exports in the third week of April followed by two weeks of underwhelming volumes. Trade data from China, the biggest buyer of Australia’s ore, showed imports dropped from 80m tonnes in April to just over 70m tonnes in May.

This forced Chinese steel mills to draw on domestic stocks. Inventories of iron ore at China’s ports have fallen by almost a sixth, according to data tracked by SteelHome consultancy, dropping for nine consecutive weeks from 98m tonnes to 82m tonnes.

“There’s little sense in locking up millions of dollars in inventory at mills when you can buy from the ports just in time,” says Georgi Slavov of Marex Spectron, a commodities brokerage based in London.

Traders said the drop in inventories led a number of Chinese hedge funds to cover short positions in iron ore derivatives. While port stocks remain below 85m tonnes they think iron ore is likely to remain supported, although prices have slipped in recent days, falling $1.20 to $60.90 a tonne on Wednesday.

The problem for the biggest producers, from Fortescue to Brazil’s Vale, is iron ore supplies are still likely to increase later this year as new exports hit the market. The increase in supplies will probably overlap with a drop in steel production ahead of the winter. “It is a seasonal trend that can’t be ignored,” says Mr Price.

Rio and BHP — the world’s second and third biggest supplier respectively — are expected to bring on more low-cost tonnes before the end of the year. In fact, the latest port data suggests Rio shipped at a record rate last week, say analysts at Macquarie Bank. On top of that, Australian billionaire Gina Rinehart’s Hancock Prospecting company is also due to commission a new 55m tonne-a-year mine in Western Australia.

“If you look at the supply and demand balance for most of this year it’s not a train wreck,” says George Cheveley, portfolio manager at Investec Asset Management. “But it starts to get bad again at the end of the year.”

By that time Fortescue’s Mr Forrest — and his supporters — may be forced into another round of media appearances to draw attention to the plight of the industry.