Iron ore capped the biggest weekly loss since April as shipments surged and data showed the slowdown in China's steel industry deepened, vindicating banks from Goldman Sachs Group to Citigroup that had forecast declines.

Ore with 62 per cent content delivered to Qingdao lost 0.7 per cent to $US55.26 a dry metric ton on Friday, falling for a seventh day, according to Metal Bulletin Ltd. Prices lost 11 per cent this week to the lowest level since April. Producers' shares sank, with Rio Tinto Group dropping to the lowest since 2009 in London and Anglo American falling to a 12-year low.

Iron ore's decline eroded gains seen in the second quarter, when prices rebounded from a decade-low as shipments missed expectations. The top suppliers, including Rio in Australia and Brazil's Vale remain intent on increasing supply as they seek to boost volumes and reduce costs per ton, expanding a glut even as demand in China slows. Goldman and Citigroup said the gains in April and May wouldn't last as low-cost production was set to increase further while demand growth slowed in China.

"The majors are continuing to push the tons," Paul Gait, an analyst at Sanford C. Bernstein & Co. in London, said after data showed record shipments in June through Port Hedland, the world's largest bulk-export terminal. "Clearly, that's bad for prices, there's no way that could be interpreted positively."

Exports from the port that handles cargoes from BHP Billiton and Fortescue Metals Group jumped to a record 38.4 million tons last month, according to data on Thursday. Shipments from Brazil, the biggest exporter after Australia, surged to 32 million tons last month from 29.55 million a year earlier, the government said.

"We'll still see prices dropping below $US40," Ivan Szpakowski, a commodities strategist at Citigroup in Hong Kong, said by phone on Friday. "Just like the weakness in exports were the main reason for the rally, now the recovery is likely to drive it lower."

The purchasing managers' index for China's steel industry, which has contracted for more than a year, extended its decline in June to about a seven-year low of 37.4, government data compiled by Bloomberg showed. New orders slumped to 27.9 from 37.6 in May. A reading below 50 indicates contraction. China is the world's largest buyer of seaborne iron ore.

Iron ore holdings at Chinese ports rose 2.8 per cent this week to 81.6 million tons, the first increase since April, data from Shanghai Steelhome Information Technology Co showed. Australia & New Zealand Banking Group said last month that the declining trend in inventories would soon reverse and lead to lower prices.

Shipments from Australia may surge 10 per cent next year, more than twice the pace forecast for 2015, the government said on Tuesday. The outlook cited expansions by producers including Rio as well as supplies from billionaire Gina Rinehart's Roy Hill mine, which are set to commence this half.

The global surplus will expand to 151 million tons in 2018 from 34 million tons this year, according to UBS Group. Prices may tumble into the $US30s in the second half as surging low-cost output swamps the market, Capital Economics said.

Rio's stock fell as much as 2.2 per cent to 2576 pence by 2.36pm in London, while BHP was 2.2 per cent lower, down 33 per cent over the past 12 months. Anglo, which produces iron ore alongside materials from copper to diamonds, dropped as much as 2.7 per cent to 893.20 pence, the lowest since April 2003.

In Sydney, Fortescue declined 4.7 per cent to take this year's drop to 34 per cent.