Rising seaborne iron ore supplies over the next two quarters will probably overwhelm weak demand from mills in China, according to Goldman Sachs, which said that a global glut was entering its second year.

While housing starts in China have recovered and infrastructure has overtaken property to become the largest market for steel, an improvement this half may not be strong enough to support iron ore, the bank said in a report. Prices are seen dropping over the next four quarters, from $US49 a metric ton through September to $US44 by the April-to-June period of 2016, according to analysts Christian Lelong and Amber Cai.

Iron ore sank to the lowest since at least 2009 this month amid concern that the biggest mining companies including Rio Tinto, BHP Billiton and Vale SA are intent on boosting low-cost supply even as demand falters. Imports by China fell in the first six months of the year, while local mills sold a record amount of output overseas. BHP, which is set to report quarterly production data on Wednesday, said on Tuesday it's spending $US240 million to upgrade tug-boat operations at Port Hedland.

"We expect seaborne supply to increase sequentially over the next two quarters and to gradually overwhelm the weak demand from Chinese steel mills," the analysts wrote in the July 20 report. "The next phase of rebalancing the iron ore market will play out primarily among marginal seaborne producers."

Iron ore with 62 per cent content delivered to Qingdao fell 0.6 per cent to $US52.10 a dry ton on Tuesday, according to Metal Bulletin Ltd. It sank to $US44.59 on July 8, the lowest for data going back to May 2009, and is 27 per cent lower this year.

STOCKS MIXED

In London, Rio Tinto was little changed at 2,592.5 pence by 3.55pm. local time, while shares of BHP climbed 0.7 per cent. Fortescue Metals, Australia's third-biggest shipper, lost 0.3 per cent in Sydney.

Goldman's team recently met in China with banks, developers and producers in the steel, mining and building-materials industries to gauge the outlook, according to the report. While there was a widely held view steel demand would improve in the second half, any pickup may not be strong enough to support iron ore as seaborne supply gains, the bank said.

Australian shipments will expand to 785 million tons in 2016 from 764 million tons this year, while Brazilian exports will rise to 411 million tons from 367 million tons, the bank forecast. Global iron ore demand will shrink 1.3 per cent this year, before expanding 1.1 per cent in 2016, it said.

Kumba Iron Ore, Africa's top producer, reported on Tuesday first-half profit fell 61 per cent, axing its dividend for the first time since it began trading in 2006. Prices are expected to remain under pressure as Australian and Brazilian miners increase supply and demand growth slows, Kumba said.

BHP plans to add six more tugs and carry out other works at Port Hedland, the Western Australian port it uses to export cargoes. The work will mitigate risks of a channel blockage at the port, the world's biggest bulk-export terminal, Jimmy Wilson, BHP's iron ore president, said in a statement.