Iron ore futures on China's Dalian Commodity Exchange surged by almost 10% on Friday to an all-time high, crossing the 1,000 yuan ($152.95) per ton mark for the first time in history.
A confluence of dwindling iron ore supply, surging steel demand and potential short-term disruptions caused by storms hitting Western Australia have led commodity analysts to raise concerns.
Lower supply estimates from Vale, the world's second-largest iron ore producer, have furthered these fears, with the Brazilian company recently curbing its 2020 production guidance and reducing its guidance for next year. Meanwhile, November shipments from Brazil to the rest of the world fell to a six-month low.
Erik Hedborg, senior analyst at commodity firm CRU, told CNBC Friday that China's strong economic performance and infrastructure stimulus had led to a surge in demand, running down already-low inventories and tightening market conditions. In tandem, seaborne supply from iron ore powerhouses Australia and Brazil has also diminished.
Australia accounted for 58% of the world's total seaborne iron ore supply in 2019, according to the World Steel Association, much of which is exported to China. Brazil accounted for 23%.
"There is now a tropical storm approaching the coast where all the iron ore is shipped from, and two of the biggest ports in Australia have now been shut, and they together account for just over half of global iron ore supply," Hedborg added.
A low pressure weather system has already arrived on the Western Australia coast and another is on the way, with residents advised to brace for gale force winds and high tides.
Hedborg suggested that China's strong demand is likely to endure, with persistently low inventories causing widespread concern for Chinese steelmakers, while the ebb in overseas supply will also last for some time.
Iron ore is a raw material used to make steel, which itself is utilized in the creation of high-rise buildings and mass transit systems.
"We are going to see lower production from Brazil than people had expected, so that is going to continue to 2021, and we are seeing issues to restart mines in Brazil, for example, and Vale will remain operating at reduced levels in the coming year," he said.
While the turbulent Australian weather may be more short term, Hedborg highlighted that the first quarter is typically more prone to weather disruption from events such as tropical cyclones.
"This right now is a sign that we could see a pretty problematic cyclone season in Australia," he added.
A group of Chinese steel producers on Friday called on the country's market regulator and securities regulator to investigate the recent spike in iron ore prices, according to Reuters, claiming they had "deviated from the supply and demand fundamentals."