Iron ore is headed back below $US50 a metric ton as low-cost supplies from Australia and Brazil expand and a slump in steel squeezes mills' profits, according to Goldman Sachs Group. The price dropped to a one-month low.

Freight data from terminals in the two biggest shippers showed volumes rose 10 per cent in the first half of June compared with the average over the first five months, the bank said in a report dated June 21. The rise will be sustained, allowing inventories in China to recover and sending prices lower again, Goldman said, predicting ore will average $US49 a ton in the third quarter and $US48 in the final three months.

Iron ore's been on a roller-coaster ride, sinking to a decade-low in April as surging low-cost output from miners including Rio Tinto Group boosted a glut. Tumbling stockpiles in the biggest user, after imports missed expectations, helped to spur gains in April, May and the first two weeks of June. Goldman and Australia & New Zealand Banking Group are among banks predicting higher ore prices won't last, while Rio says further production is planned even as demand growth weakens.

"Rising supply from Brazil and Australia, which in aggregate account for 80 per cent of seaborne exports, together with subdued demand from Chinese steel mills will once again shift the balance of power from producers to consumers," analysts Christian Lelong and Amber Cai wrote.

Ore with 62 per cent content delivered to Qingdao slumped 2.2 per cent to $US60.02 a dry ton on Monday, according to data from Metal Bulletin Ltd. That's the lowest level since May 22, and followed last week's 5.8 per cent loss. Prices, which bottomed at $US47.08 on April 2, are 16 per cent lower this year.

Goldman's been warning recent gains won't last for at least six weeks. The bank said on May 11 the advance offered investors an opportunity to bet on renewed declines, and followed that on June 8 saying the rally was on borrowed time.

The cost of shipping ore to China rose 10 to 20 per cent since the start of June, signaling increased shipments, Goldman said in the June 21 report. Mills' profits fell to a five-year low in May as steel and iron ore prices diverged, and negative margins at some steelmakers will reduce output, the bank said.

Holdings of ore at Chinese ports fell 2.1 per cent to 80.3 million tons last week, the lowest since 2013, according to Shanghai Steelhome Information Technology. Inventories lost 13 per cent last month, the biggest monthly drop on record.

The forecast increase in supplies will help to shore up the inventories that were depleted by weaker-than-expected exports in April and May and, once they are back to normal, low prices will again be required to balance the market, Goldman said.

There's no logic in holding back supply as shareholders would lose out, according to Andrew Harding, Rio's head of iron ore. As the lowest cost supplier, the company makes money on each ton it sells and will continue to expand, he said in an interview published last week on the company's website.

ANZ on Monday recommended bets on lower iron ore prices, predicting a drop to $US53 a ton. Increased supplies and further cuts to steel output will hurt prices, according to Citigroup, which forecasts $US38 in the fourth quarter.

"You'd expect the iron ore market to slip back into that oversupply situation that we got accustomed to at the back-end of last year," Wayne Gordon, an analyst at UBS Group in Singapore, said in a Bloomberg TV interview. Prices will start to head back down to about $US50 by year-end, he said on Monday.