The destiny of iron ore prices may lie in the hands of miners scattered across China, according to Australia & New Zealand Banking Group, which raised the possibility that domestic suppliers may be tempted to boost output after the raw material rallied to a two-year high.

The response from Chinese producers "represents a key risk to prices this year", Daniel Hynes, senior commodity strategist, said in a note. Output from these miners slumped more than 60 per cent over the past three years, and if supply is pushed back to levels last seen when prices were above $US80 a tonne, 50 million tonnes of capacity may be reactivated in China, Hynes wrote.

Iron ore has more than doubled since December 2015 as stimulus in China helped to sustain steel output in the world's top producer, with data on Friday showing mills raised supply 1.2 per cent last year. The rally has endured even as overseas suppliers in Australia and Brazil continued to boost low-cost mine output, increasing their share of sales into China while local miners pulled back. ANZ said foreign suppliers would probably be able to hold their own and, as yet there aren't signs of a bounce back at mainland mines.

While a return of Chinese supply would weaken the market and may push prices below $US60, "we believe the probability of this occurring is relatively low", ANZ said. "Exporters have established strong relationships with buyers in China and now provide nearly 90 per cent of China's total iron ore consumption."

Ore with 62 per cent content in Qingdao fell 0.7 per cent to $US80.41 a tonne on Friday, according to Metal Bulletin. The commodity reached $US83.65 on Monday, the highest since October 2014. Earlier, futures in Singapore fell, with the SGX AsiaClear contract down 1.5 per cent.

Producers in Australia and Brazil have benefited from the recent advances, including Vale, which has just started to ramp up output from its S11D mine. On Tuesday, London-based Rio Tinto Groupreported fourth-quarter shipments from Australian operations that topped estimates, and forecast 2017 exports of 330 million to 340 million tons, in line with earlier guidance.

Crude-steel production in China increased to 808.4 million tons last year, the statistics bureau said on Friday. December's total expanded to 67.22 million tons, 3.2 per cent more than the same month in 2015, it said.

"Optimism in China's steel industry remains the key driver of iron ore prices in the short term," said Hynes, adding that on a fundamental basis there's little reason for prices to fall significantly. "However, China's domestic iron ore industry could also have a big say in iron ore prices remaining near current levels in 2017."