Fortescue Metals (ASX: FMG), the third largest iron ore miner in Australia, is forecasting the rise of iron ore prices between $139 and $140 a tonne in the short term due to low iron stocks, particularly in China.

Neville Power, Fortescue chief executive, added that on longer-term perspective, the price of the key steel-making commodity would hover between $120 and $130, significantly higher than the record-low $86.70 in the later part of 2012.

He explained the more optimistic forecast to steel stocks in China, the biggest importer of iron ore, due to stock not increasing significantly even if it is relatively high. He said China's steel mills are expected to produce 2.1 million to 2.2 million tonnes of steel daily.

"While there is some potential for a correction in steel production, it would only be minor and supply/demand balance is there in iron ore so there aren't the same factors that create any significant drop in the iron ore prices," The Australian quoted Mr Power.

The significant drop in the price of the commodity caused Fortescue's share prices to go down and forced the firm to refinance its debt which had ballooned to $12.6 billion. However, despite analysts' prediction that Fortescue could not settle its huge debt, the firm is now debt free until late 2015.

Due to the improved finances, shares of Fortescue went up 9.9 per cent to A$3.77 at the close of Friday's trading.

"China looks very strong going forward and we've got renewed confidence in the continued industrialization and urbanization growth in China," said Mr Power, who added the Asian giant's economy is growing between 7.5 per cent and 8 per cent annually, which would lead to higher demand for the commodity and continued growth in its steel industry.

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