MANILA: Iron ore futures extended gains on Tuesday on optimism about economic recovery prospects for top steel producer and consumer China and as investors questioned Brazilian miner Vale SA's ability to increase output of the raw material.

Iron ore's most-traded September contract on China's Dalian Commodity Exchange closed the day session 3.3% higher at 890 yuan ($127.45) a tonne, sustaining a strong start in August and underpinning gains in the spot markets.

The Singapore Exchange's benchmark September contract was up 0.9% at $111.50 a tonne in afternoon trade.

Physical prices in China also continued to rise, with Mysteel consultancy's 62% Australian fines benchmark scaling a one-year high at 891 yuan a tonne on Monday, while the spot price tracked by SteelHome consultancy rose $3 to $112.50.

China's upbeat July factory data "buoyed hopes of a more substantial economic recovery and healthy demand for the raw material", commodity strategists at ING said in a note.

Some Chinese steel mills have resumed operations after last month's disruptions caused by floods, further boosting iron ore demand, they said.

While China's portside iron ore stockpiles also rose - reaching 116.95 million tonnes by July 31, the highest since late April, based on SteelHome data - ING said total inventories remain below the five-year average.

"Supply issues are still bubbling away in the background," ANZ senior commodity strategist Daniel Hynes said.

"Concerns about rising infections in Brazil are still high, with many investors questioning whether Vale will be able to increase output in the second half of the year," he said.

Brazil has the second-worst coronavirus outbreak in the world after the United States.

Construction steel rebar on the Shanghai Futures Exchange gained 0.8%, hot-rolled coil advanced 0.9% and stainless steel climbed 1.9%.