Iron ore price recovery unlikely this year

Westpac’s chief economist says the price of iron ore won’t see a recovery until at least 2016.

Westpac economist Justin Smirk said with demand out of China unclear coming into the New Year, and high volumes of iron ore being exported to the country, price volatility would continue.

The comments come just days after the price of iron ore fell to six-year lows of $US57.70 a tonne.

Smirk said the price had the potential to fall even lower as record tonnage of iron ore were still being produced by the big three: BHP Billiton, Rio Tinto and Vale.

Even at low prices, the majors are still profitable, which is why they’re pumping out large volume of the commodity, Smirk told ABC radio.

Smirk said the start-up of Gina Rinehart’s Roy Hill mine later this year could also have a downward effect on the price of iron ore as the operation is poised to be a large, cheap supplier.

Smirk said adjustments would come as some of the marginal Chinese miners left the market but this was not happening “as fast as some people anticipated”.

While Smirk said he did not want to paint a negative view on China, he said the country was in an readjustment phase that was seeing a slow in housing construction.

The country recently downgraded its annual growth forecast to 7 per cent and flagged it will be producing 256 million less tonnes of steel by 2030.

"The demand pulse is not as strong as it was and we've got a strong supply pulse, so we are in a readjustment point right here," Smirk said.

Last week Citi iron ore and steel trading head Mark Lyons said the price of iron ore could fall as low as $US50 a tonne.

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