Iron ore prices rallied 2.7% to US$113.95 a tonne on Tuesday after plunging a brutal 23% over the previous eight sessions.
A dizzying eight-day plunge had whacked the metal's value by nearly a quarter to US$112.35 a tonne by Monday, as steel mills shut blast furnaces due to growing concern over China's demand outlook.
Monday's fall was sparked by fears of a slump in steel consumption in China, the world's largest user.
The most-traded iron ore contract on China's Dalian Commodity Exchange dropped 10.8% to 747.50 yuan (US$111.74) a tonne, its lowest level since March 16.
The front-month July contract on the Singapore Exchange dropped 7.7% to US$110.75 a tonne.
China's recent COVID-19 outbreaks, a slowdown in construction activity during the rainy season, rising steel inventories caused by sluggish demand, and weaker profits at mills have led traders to worry about market fundamentals.
At the beginning of 2021, iron ore was selling for about US$110 per tonne and the price rose in March to US$156 per tonne as China's lockdown gathered speed, and as steel mills and traders responded to repeated promises from the government to stimulate the economy and hit China's 5.5% GDP growth target for calendar 2022.
Monday's eight-day plunge suggests traders and steel mills are losing confidence that a second-half surge in Chinese growth will materialise.
"The decision to operate at high capacity even after lockdowns hit growth suggests firms are also betting that a rebound in infrastructure and property will sustain demand," Gavekal analyst said in a note, reports Bloomberg.
"Although infrastructure spending has picked up this year, the property sector, which accounts for 39% of total steel consumption, has failed to fully recover and prospects are uncertain."
This month, one index of Chinese steel profits plunged by almost 90%, with reports indicating steel mills are now idling their blast furnaces and bringing forward planned maintenance in an effort to limit their losses, which is further pulling down the price of iron ore.
"The more you produce, the more you lose," an international trader told Platts of the steel mills’ plight.
Iron ore producers are seeing their share prices affected by what is happening in China's steel industry.
Rio Tinto PLC (LSE:RIO) has dropped 14% since June 7 and Vale International Group (LSE:VALE) SA has fallen 17%, while BHP Group Limited (LSE:BHP) and Fortescue Metals Group (ASX:FMG) have also fallen significantly.
Without a quick turnaround in China, these companies may soon have to curtail exports.