UBS analysts expect iron ore prices to remain stable over the next three months, helped by continuing strong demand for steel from China's property and infrastructure sectors.
The view is slightly more positive than market expectations for a continued downward momentum in Australia's top export earner, which has slid from a peak of nearly $US95 a tonne in February to about $US57.
In a note released after a visit to China in June, UBS analysts said activity in the country's property markets remained steady but is expected to ease because of credit restrictions.
However, that is offset by robust demand from the infrastructure sector, with projects initiated last year by local and central governments being executed now.
This in turn, is likely to sustain demand for steel and iron ore in the near term, UBS analyst Daniel Morgan said, highlighting "a very healthy time" for steel.
"Supply is constrained by closures, creating record high steel prices and margins," he told reporters in a briefing on Tuesday.
"If you can legally produce steel, everyone's running as fast as they possibly can."
However, iron ore inventory levels at Chinese ports continued to be very high and are an obvious bearish signal, he added.
If steel production in the September quarter is held at similar levels to the June quarter, there is potential for iron ore to perform against market expectations, Mr Morgan said.
Iron ore prices jumped 80 per cent in 2016 and continued rising in the first two months of this year on the back of higher Chinese imports, but prices have since moderated amid concerns of an oversupply and a slowing down of China's economy.
Analysts widely fear prices will slip further as supply increases from Brazil's Vale and Gina Rinehart's Roy Hill mine.
Earlier this month, Citi analysts cut their 2017 average price forecast for iron ore to $US61 a tonne from $70, and expect the steel-making ingredient to fall to $US50 a tonne next year.
