Iron ore has ended a powerful rally from its December nadir in the $US30s, falling nearly 3 per cent from Monday's highs following China's sharemarket sell-off.
Australia's biggest mineral export rose from its low of $US38.30 per tonne on December 11 to $US44.37 on Monday but retraced 2.8 per cent to $US43.11 on Tuesday.
Citi's head of Asia commodity research, Ivan Szpakowski, said the decline was driven by China's equities sell-off.
"That was the trigger," he said. "It hasn't been a big move ... but you'd be inclined to say this slight downward tick will play out a bit more."
China's sharemarket fell 7 per cent on Monday, triggering a broader commodities sell-off. The Shanghai market had recovered slightly on Wednesday.
Mr Szpakowski said that, in the short-term, iron ore would continue to be influenced by the Chinese sharemarket and also by the price of oil.
The rally from $US38.30 happened because the market had been oversold, he said.
"If you look at the fundamental demand and supply picture, conditions really hadn't changed nearly so much either to the downside or the upside as much as prices implied," he said.
"The large two-month sell-off that we saw from $US55 to $US37 – that was driven by expectations that Chinese steel mills would cut back further because of low margins, coupled with the bearish macro picture in China and oil markets."
Having said that, Mr Szpakowski said he expected prices to fall back into the $US30s, driven by poor Chinese demand for steel.
"We're still extremely negative for the first quarter of this year. The biggest factor we still see is the Chinese steel mills," he said.
"You still have the majority of steel mills that are losing money. We expect that further cut-backs will have to occur in the first quarter of 2016 and we think that's going to be the biggest problem for iron ore prices."
Iron ore stockpiles at ports in China are heading into 2016 at the highest level in more than seven months, according to a recent Bloomberg report, putting further pressure on prices.
"Stockpiles have been on the rise because domestic demand is getting weaker and shipments from the major producers have increased," Dang Man, an analyst at Maike Futures in Xi'an, China, said last week.
Holdings rose 0.8 per cent to 93.1 million tonnes last week in the final reading of 2015, according to Shanghai Steelhome Information Technology. The inventories are at the highest since May 2015 and have expanded for four months.
Australian iron ore miner Grange Resources released an ASX statement on Monday that "redundancies may be made" due to "continued weakness in the iron ore price and subdued pellet demand".
Grange Resource general manager of operations Ben Maynard told the ABC that redundancies might be necessary, but the company would need to watch the iron ore price over the first quarter of the year before decisions were made.
"It's not something I want to see happen, that the business wants to see happen," Mr Maynard said.
"We're really just treading through this quarter to see what the price is going to do. We'll have to see what the price does and cut our costs accordingly.
"And we'll do our best to keep our people informed about what that's going to look like."
Grange finished 4.4 per cent higher at 9.5 cents in Wednesday trade.