Australia has cut its iron ore price forecast for 2016, even as the key steel-making ingredient rallies.

The Department of Industry, Innovation and Science cut its forecast to $44.2 a metric ton from $45 a ton, in its quarterly resources report.

The forecast comes amid a rally in iron ore prices this year, with prices jumping well almost 30 percent year-to-date.

Still, although spot iron ore price averaged $48 a ton in the first half of 2016, this was a 13 percent decline from a year ago, the department noted.

"Despite the large movements in prices, the market fundamentals are broadly unchanged - demand growth is slow and the market remains well-supplied," the report said.

Australia is the world's largest exporter of the steel-making material, shipments of which have been hit by slowing growth in world largest importer, China .

The report also noted that the spot price for iron ore from Australia traded between $40 and $66 a ton from February to April due to speculative trading on the Dalian Commodities Exchange in China.

The volume of iron ore futures being traded on the Chinese exchange "grew rapidly," exceeding half a billion tons on 32 occasions in the three months.

The Australian Government said prices were likely to moderate over the rest of 2016 due to stronger supply growth and weak demand growth.

Australia also lowered its 2017 price forecast for iron ore to $44 a ton, down from its $55 a ton prediction.

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