After a miserable May, iron ore opened the new month on the back foot. Futures in Asia fell to the lowest level in seven months as rising concern about increased supplies offset positive signs, including data from China that may signal record steel output in the top producer.

In Singapore, the SGX AsiaClear contract sank as much as 2.2 per cent to $US54.30 a tonne on Thursday, the lowest since October, after an 18 per cent drop in May. Futures in Dalian fell 1.1 per cent, while benchmark spot ore retreated 1.8 per cent to $US55.97 a tonne in Qingdao, according to Metal Bulletin.

The commodity has been on a wild ride this year - coming close to challenging the $US100 level in February before collapsing over the next three months - as investors sought to gauge the impact of greater supply and the outlook for steel demand in China. Iron ore's latest leg down has happened even after a manufacturing gauge for the world's largest steel industry rose to the highest in a year, suggesting another month of bumper production.

"Cargoes from the four largest exporters have remained at high levels, causing port inventories to repeatedly hit new highs," Dang Man and Ren Jiaojiao, analysts at Maike Futures Co, a Chinese brokerage, said in a note. While steelmakers may be churning out record output, "they're making hand-to-mouth purchases of raw materials. Iron ore's fundamentals are pretty weak".

Iron ore has dropped even as mills in China boosted output to an all-time high in April. The data on Wednesday showed the industry's purchasing manager's index rose to 54.8 in May from 49.1 a month earlier, as an underlying gauge of production jumped to 58.2 from 56.2. Readings above 50 show expansion.

In contrast, the Caixin General Manufacturing PMI, released on Thursday, dropped by 0.7 points to 49.6 points, marking its first contraction in 11 months.

"While demand has risen at a rapid pace, iron ore supply has overwhelmed even more," Macquarie Group said in a report received on Thursday, targeting a slump back to $US50 a tonne in the second half. "As consumption rolls over into the middle of the year, iron ore inventory will start to become an increasing drag on prices."

Steel prices also retreated on Thursday, extending the previous day's losses. On the Shanghai Futures Exchange, reinforcement bar eased to a two-week low, while hot-rolled coil lost 0.5 per cent.

The global market will stay well supplied over the next five years as miners boost production further, according to BMI Research. Output from Brazil will jump more than 100 million tonnes by 2021 as Vale presses on with a ramp-up of its biggest project, S11D, the research arm of Fitch Group estimates.

Operations have been suspended at BHP's Mt Whaleback iron ore operation in the Pilbara after a blaze that tooks tens of firefighters hours to control.