Ore with 62 per cent iron content delivered to Qingdao dropped 3.4 per cent to $US42.97 a tonne on Monday, the lowest level in daily data dating back to May 2008. Indeed, it was the lowest since 2005, based on annual pricing that preceded the current spot-based system, Reuters reported.

A slowdown in China's manufacturing sector has hit oversupplied commodity markets hard. On Tuesday, official data showed China's factory activity slipped to its weakest level in more than three years.

ANZ head of commodities Mark Pervan said iron ore "absolutely" faced the possibility of trading between $US30 and $US40 in the first quarter of 2016.

Mr Pervan said the timing of iron ore orders and shipments revolved around the Chinese New Year holidays from February 7 to February 13.

Usually, he said, the Chinese placed orders for iron ore in the fourth quarter, stockpiling it in the first quarter for steel production after the holidays finished.

Consequently, there were fewer iron ore orders placed in the first quarter and demand was traditionally weak. That would especially be the case this year, he said.

"It will definitely test $US40," Mr Pervan said.

"Past the Chinese New Year there's likely to be a number of bankruptcies. There's likely to be a number of steel mills that will go under.

"This will be the shake-up the industry is looking for. It's probably going to happen in the first quarter, possibly the second quarter. I can see steel mills holding out to the Chinese New Year, taking holidays, and then not coming back."

Slow demand

Mr Pervan said there may be some pick-up in iron ore prices over the new few weeks as the Chinese placed their final orders for the first quarter steel production period.

"There might be a little bit of buying interest from the Chinese, but it won't be strong," he said. "I just don't see a catalyst."

Iron ore at China's ports climbed to 87.65 million tonnes on November 27, the highest since May, data tracked by industry consultancy SteelHome showed.

The port inventory has risen more than 10 per cent since June, reflecting slow demand from Chinese steel producers, many of which have been curbing production as falling demand widens their losses.

"A stabilisation in China's steel prices remains the key to sentiment for iron ore, but the industry needs to cut output for this to occur," ANZ said in a note.

Iron ore for May delivery on the Dalian Commodity Exchange was down 0.5 per cent at 294.50 yuan ($US46) a tonne, after touching a near five-month low of 290.50 yuan.

The price of rebar, a construction steel product, lost more ground, with the most traded May contract touching an all-time low of 1,618 yuan a tonne on the Shanghai Futures Exchange.

Steel production in China, which accounts for about half of global output, will contract by an annual average of 1.4 per cent between this year and 2019, Fitch Ratings' BMI Research said, citing a slowdown in Chinese fixed-asset investment.