Spot iron ore prices rose to their highest in almost a month as some Chinese mills replenished stockpiles, although a shaky outlook for steel demand has kept buying interest in check.
Iron ore imports by China, the world's top buyer of the commodity, rebounded in March from four-month lows in February, although the volume, at 64.55 million tonnes, was the second lowest in five months.
"This shows that steel mills are not significantly restocking and are just purchasing what they need, despite inventory at ports having fallen," said Helen Lau, senior commodities analyst at UOB-Kay Hian in Hong Kong.
Stockpiles have fallen to about 68 million tonnes from a high of around 97 million last year, she added, or a drop of nearly 30 percent.
"Mills have been quite cautious in importing iron ore because steel demand didn't recover as expected in the first quarter and steel product inventories are still high, at around 21 million tonnes," Lau said.
Benchmark 62-percent grade iron ore gained 1.1 percent to $139.10 a tonne on Tuesday, its loftiest since March 12, according to data provider Steel Index.
Iron ore has recovered nearly 5 percent since touching three-month lows in mid-March, but remains more than 12 percent below this year's peak of $158.90.
"I think it's mostly traders driving the market higher," said an iron ore trader in Rizhao city in China's eastern province of Shandong. "Mills are buying, but in very small volumes."
Small to midsize steel producers in China are only holding iron ore inventory for around 15 days of use, versus 30 to 40 days in a "boom market," he said.
"Steel mills have been buying (iron ore) as construction starts again, but are reluctant to push prices too high as profit margins are thin and stocks high," Sucden Financial said in a note.
The caution reflects a hazy outlook for steel demand. While sales of steel products have improved somewhat from late March, they are not recovering as fast as the market had expected.
That leaves both mills and traders with large steel inventories as Chinese producers, continuously fighting to hold on to market share in a fragmented industry, keep their blast furnaces running, weighing on prices.
The most-traded rebar contract for October delivery on the Shanghai Futures Exchange dropped 0.4 percent to 3,830 yuan ($620) a tonne on Wednesday, snapping a three-day rally.