Iron ore has continued its slide south of the $US100 a tonne mark, dropping to $US96.80 overnight as China’s central planning agency said the country’s high steel demand period had passed.
The price of iron ore has fallen more than 25 per cent in 2014, and crashed to double digits last week for the first time in two years.
In 2012 the commodity spent only two weeks trading below $100 a tonne and hadn’t hit similar lows since the financial crisis in 2009.
While Australian miners are so far shielded from any real price crunch, with margins still large enough to sustain profit, further dips have the potential to derail junior miners who have higher costs.
Uncertainty driven sell offs have seen shares in most of Australia’s iron ore miners drop as investors continue to be spooked by data from China.
BHP Billiton and Rio Tinto dropped 1.2 per cent and 1.8 per cent respectively in early trade, while FMG lost 2.1 per cent.
"All data shows China’s slowdown is very obvious at the moment, and the whole market is worried," Biyi Cheng, head of Asia-Pacific dealing at City Index in Sydney, told Reuters.
"The mining sector is under pressure – if Chinese demand is going down, that will affect profits significantly this year."
China consumes two-thirds of the 1.2 billion seaborne trade and on Wednesday the central economic planning agency confirmed what many analysts have been saying for months: expect lower prices.
"The period of China's high steel demand has passed, and iron ore demand is now rising at a slow pace of three to four per cent annually," the National Development and Reform Commission said.
"In the next two to three months, iron-ore output will increase, port inventories will remain high; under slow demand for steel products it will be difficult for iron ore prices to rise."
Some analysts are pointing to price dips of as low as $US87 a tonne by the second half of the year.
And a new wave of supply from BHP Billiton, Rio Tinto and Vale is not expected to help.
BHP recently announced it’s on schedule to ramp up production at its new Jimblebar iron ore mine to 55 million tonnes, with a long term target of 270 million tonnes per annum across its Pilbara operations.
Rio has reached on annual run rate milestone of 260 million tonnes from its Pilbara iron ore system of mines, rail and ports, with a view to increase this to 360 million tonnes by the end of 2015.
However with a cash cost of between $40-$45 per tonne produced, the majors are more sheltered from further price shifts than juniors who generally run at higher costs.
But not all are pessimistic.
Atlas Iron managing director Ken Brinsden said while the current price slump was due to new supply, he expects the phase to be short-lived.
“It takes a while for those tonnes to find a natural home, and whilst that process is unfolding, the buyers have a few more options,” Brinsden said.
“I see that as being a relatively short-term phenomenon. Stability will return when those tonnes find a home.”
He said while the iron ore market is volatile, a slowdown in China steel production is still a growth story, The Australian reported.
“The reason we see that demand being quite strong is that there are still significant chunks of high-cost domestic production in China that ultimately should not be in the market,” he said.
“It’ll take a long time for seaborne trade to have grown enough to completely displace it.”