The spot iron ore price slumped to its lowest level since September 2009 overnight as the commodity dropped a further 2.3% to just US$79.80 a tonne. The heavy fall came after the Chinese government dampened any hopes they would introduce stimulus measures to fuel growth in the world's second largest economy as house prices in the country dropped for the fourth consecutive month.
So What: Australia's iron ore miners have certainly felt the pinch today with small-cap miners like Atlas Iron Limited (ASX: AGO) and BC Iron Limited (ASX: BCI) plunging 4.4% and 1.6% respectively. Given that these miners operate on higher costs, the plummeting iron ore price is certainly posing as a threat to their very existence.
Although the nation's bigger miners are far better equipped to cope with the lower price environment, it seems investors are still concerned about how their margins and overall earnings will be affected going forward. BHP Billiton Limited (ASX: BHP) has tumbled 1.1% today, taking its total decline since peaking last month to 13.2%, while Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) have dropped 10.3% and 22% in the same time frame.
Now What: Investors hoping for a sudden recovery in the spot iron ore price shouldn't hold their breath. Although the commodity could rebound in the near-term, the reality is that excess supply from the world's largest miners, combined with slowing demand growth from China, will only drive prices lower in the mid term.
While BHP Billiton and Rio Tinto both seem to be approaching more appealing prices, I would be far more inclined to remain on the sidelines until the level of volatility in the industry subsides, or until prices fall even further.
