By Rhiannon Hoyle

SYDNEY--The value of iron ore shipped to China sank nearly 4%, snapping a two-week rally as higher prices damped appetite for the steelmaking ingredient.

Steelmakers in China, the world's largest steel producer and consumer, had been on a buying spree in recent weeks, stocking up on the raw material ahead of a seasonally strong period for steel output and sales, analysts said.

Prices for the raw material stalled just below US$60 a metric ton, though, after rebounding from a decade-low of around US$47 a ton earlier this month. Morgan Stanley analyst Tom Price said buyers were likely rattled by the spike in prices.

Ore with 62% iron content sold at China's Tianjin port--widely viewed as an industry benchmark--attracted a price of US$56.90 a metric ton Wednesday, down US$2.30 a ton on the previous day, according to information provider The Steel Index. Prices are down nearly 50% on a year ago.

Credit Suisse analyst Matthew Hope put recent volatility down to restocking activity by Chinese steel mills.

"Chinese mills will not buy raw materials when the price is falling, so the demand vacuum sees the price collapse below the level steady demand would allow," he said. "When the price stabilizes, a surge of restocking lifts the price too high, and then the cycle starts again."

Morgan Stanley estimates prices could still rise to US$70-US$80 a ton before peaking in mid-2015, when rising supplies from new and expanded mines in places such as Australia are expected to push prices lower.

Large producers including Rio Tinto PLC and BHP Billiton Ltd. have expanded their operations in the Pilbara iron-ore mining hub of northwest Australia in recent years, betting that China will still need more of the commodity to make steel for its skyscrapers and for industries such as auto manufacturing.

"There's still lots more new ore from the majors" to come later this year, said Mr. Price.

Investment bank Goldman Sachs recently downgraded its outlook for the market, and said it didn't expect prices to sustain a recovery above US$50 a ton.

On Wednesday, China's state-backed steel industry association called on the central government to accelerate tax-relief measures to support the country's own iron-ore industry, much of which is unprofitable at current prices.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

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