Spot iron ore prices rose to fresh three-month highs on hopes China''s steel production pace will remain high as mills keep up with firm construction demand.
But a drop in China''s steel futures for a second day on Friday could sap the upward momentum in prices of the steelmaking raw material.
"There are still buyers out there, but it''s becoming difficult to push prices higher," said a shipping manager for an iron ore trading firm in Shanghai.
Two index-based spot prices hit their highest levels since mid-May on Thursday.
Iron ore with 62-percent iron content rose 0.1 percent to $178.50 a tonne, according to The Steel Index .IO62-CNI=SI, the highest since May 16.
Metal Bulletin''s iron ore index .IO62-CNO=MB gained 0.4 percent to $178.94 a tonne, its loftiest since May 12. The Platts index IODBZ00-PLT was steady at $180.25.
Indian exporter Essel Mining sold 63.5/63 grade iron ore at $189 a tonne, cost and freight, this week, the highest so far for the grade in recent months, traders said.
"That grade is still unable to cross $190, which means not all the Chinese mills are willing to pay this kind of price," said the shipping manager.
Global miner BHP Billiton also sold three cargoes comprising 62-grade Newman iron ore fines and 58-grade Yandi fines at $183 and $159 a tonne, respectively, this week.
China''s daily steel production has averaged more than 1.9 million tonnes since late February, up from last year''s 1.7 million tonnes, spurring recent gains in both iron ore and steel prices.
But Shanghai steel futures eased for a second day on Friday, with the most-traded January contract slipping 0.3 percent to close at 4,800 yuan a tonne, in line with cautious trading in other commodities ahead of a speech by Federal Reserve Chairman Ben Bernanke later on Friday.
Shanghai rebar, which fell 0.3 percent on week, its first loss in three weeks, is down more than 2 percent so far in August.
Bernanke is expected to unveil a plan for the struggling U.S. economy at an annual central bankers conference in Jackson Hole, Wyoming, although market participants are not expecting him to announce aggressive measures like another round of bond buying.
"We still expect iron ore prices to be supported by tight supplies from India. There still aren''t much new offers from both Indian traders and miners," said an iron ore trader in Shanghai.
"But mills might be cautious in buying more iron ore if prices continue higher."
Weaker prices for iron ore swaps on Thursday suggested investors are unsure whether recent price gains in the physical market can be sustained.