Ore with 62 per cent iron content hit $US61.18 in China's Qingdao Port, building on a 3.5 per cent rise on Friday.

Iron ore dropped last week to $US57.12 a tonne and forecasts remain for the price of iron ore to potentially fall as low as $US45 a tonne in the second half of the 2015 calendar year. It was trading as low as $US47.08 in April.

One Shanghai-based iron ore trader told Reuters the recent price increase was a result of supply shortages at China's steel mills.

"The availability of some spot cargoes is not matching demand currently and a lot of mills are running low on inventory," he said. "But I heard from port agents that more vessels are coming this week, so this shortage may be temporary."
 
Analysts will be tracking the weaker steel demand in China as construction slows, which has prompted some large producers to curb output early in May, which is also a risk for iron ore prices.

Last week, China steel prices slid to their lowest level in 12 years, and China and Brazil's Vale unveiled a deal that will boost supply of iron ore into an already saturated market.

UBS commodity analyst Daniel Morgan said China's steel production industry would reach its annual peak in May or June, so the recent pick-up in prices would fade as its short-term causes did.

Short-term factors

"The jump is due to short-term factors. We may see these sorts of levels for the next month or at most two, but I don't think these rates are sustainable."

Mr Morgan also attributed the price jump to some supply disruption in April, and specifically some issues with Rio Tinto's port loading operation and there being fewer cargos in the spot market than expected.

Embattled Fortescue Metals Group was thought to be one of the biggest losers from the agreement between China and Vale, which dramatically reshapes the Brazilian miner's cost of production.

However, the gains overnight bode well for the big miners such as Rio Tinto and BHP Billiton, but particularly for more narrowly focused mining groups such as Fortescue, whose shares copped a battering after the price of ore collapsed.

But this week the company is reaping the benefits of a boosted ore price, with stocks closing up 2.8 per cent on Monday at $2.17.

China's largest steel producer Baosteel, in partnership with large mainland conglomerate CITIC, is understood to have applied to the Foreign Investment Review Board to increase its investment in the metals group, which is seeking fresh capital to restore its balance sheet.

While a spokesman for Fortescue said the company would not comment on market speculation, chief executive Nev Power has previously praised exactly such a partnership.

"A strategic investor would probably be the most appropriate partner for us I think," Mr Power said.

"We have discussions all the time with people who are interested in asset sales. For us, it is really important that we see the right partners and on the right terms and values."

The company has a massive $US4.9 billion debt repayment due in 2019.