Iron ore spot prices have surged to their highest level in almost four months, according to industry estimates, further undermining Chinese efforts to secure a large cut in the annual price negotiations with global miners.

The rise in spot iron ore prices is significant for the global economy as it filters quickly into steel costs and then into products such as cars or washing machines.

As iron ore trades mostly in the physical market, the rise in prices suggests strong demand, rather than speculative money from investors.

Iron ore prices this week hit $76.50 a tonne, including cost, freight and insurance.

This is the highest price since mid-February, and is approaching the level at which Rio Tinto and Vale of Brazil, after cutting their annual prices by 33 and 28 per cent respectively, have settled with clients in Japan, South Korea and Taiwan.

Analysts said that China's bargaining power in the negotiations was diminishing by the minute, warning that Beijing may need to accept a similar cut to other countries.

Chinese steelmakers are still holding out for a larger cut, demanding that prices revert to the 2007-08 level with a cut of 40-45 per cent.

But time is running out for an agreement with Vale, Rio Tinto and BHP Billiton, with an informal deadline of June 30. After that, miners have warned previous long-term agreements with Chinese steelmakers would be void and they would sell ore at spot prices.

The China Iron and Steel Association, the country's top negotiator with miners, has insisted that if Vale, Rio and BHP Billiton do not offer a larger price cut, it is ready to buy all the ore on the spot market.