Could iron ore drop to $US30 a tonne?

An economist has warned that the price of iron ore could fall to lows of $US30 a tonne.

The bearish prediction comes after the commodity declined further last week, dropping to $US61.64 on Thursday.

Iron ore has now lost more than 16 per cent of its value since January after plummeting by 47 per cent in 2014.

However the worse may be yet to come, with an economist out of Shanghai predicting a collapse to $US30 a tonne.

According to Andy Xie, an independent economist, a contracting steel manufacturing industry in China will lead to oversupply as the big three miners – BHP Billiton, Rio Tinto and Vale- pump out record volumes of ore into a flooded market.

“We have a situation of declining demand and increasing supply,” said Xie.

“Domestic steel demand in China is actually declining and that trend is going to last a long time.”

Xie said there was little chance the majors would cut production in order to encourage a price lift – as this would just keep high-cost miners in the market for longer.

He said prices need to decline to a level that so painful “higher-cost Chinese mines will be forced to give up”.

“We need to see prices much, much lower. It can still go down through $40 before we bounce back.”

However a recent report suggests a collapse in Chinese production may be hard to come by with the government there working to preserve employment in regional areas and this means the price will only go one way: down.

Australia's Bureau of Resources and Energy Economics (BREE) said that while Australia will export a record 747 million tonnes of iron ore in 2014-15, its export value will decrease 24 per cent to $57 billion.

BREE cut its iron ore price forecast for 2015 to $US63 a tonne.

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