Iron ore drops below US$50

Iron ore has fallen below the psychological US$50 per tonne benchmark, dipping to US$49.60 overnight.

This is the latest fall for the commodity, after slipping to US$52 earlier this week.

The overnight price puts the metal at its lowest point in more than two months, and close to its record lows in April, when iron ore was trading at $US46.70 per tonne, forcing companies to mothball operations and cut thousands of jobs.

An ongoing collapse of the price has eroded the rally made since April, with the fall pushing many junior producers into dangerous territory below break-even prices.

Last month UBS analyst Daniel Morgan predicted the slide to continue to US$45 a tonne, unless drastic action was taken.

This was echoed by Clarksons mining analyst Jeremy Sussman, who forecast the recent slump to continue to US$40 per tonne.

Atlas Iron was a high-profile victim of the iron ore collapse earlier this year after it closed its Pilbara mines and cut 600 jobs.

Since then, Atlas contractors have stepped in to help the company stay afloat, ushering in new deals that were expected  to deliver Atlas a break-even price of US$50 per dry metric tonne for 62 per cent Fe, a point which has now been passed.

Similarly BC Iron is forecast to have a break-even price of $US52 per tonne, while Arrium’s break-even price is estimated at $US51 per tonne, with this new low putting all their futures in doubt.

Fortescue, however, still has breathing room with its price point estimated at around US$44 per tonne.

However there is a rally forecast ahead, with the iron ore price expected to average $US54 per tonne in 2015, before slipping to an average $US52 per tonne next year.

Banks are also bullish in the long term, expecting many smaller producers to shut, cutting supply and rebalancing the market.

 

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