The iron ore price continued its decline overnight with the steel-making ingredient falling to its lowest level in more than five years. According to data from the Metal Bulletin Ltd, the commodity lost US$1.02 to be sitting at just US$66.79 a tonne – a price not seen since June 2009.
The latest decline came amid further speculation that Chinese demand would continue to fall over the next month in the lead up to China's Lunar New Year break. Further, the Chinese government also recently announced that its economy had expanded at 7.4% last year, which is its slowest rate of growth recorded in 24 years.
At the same time as Chinese demand is slowing, the world's largest producers continue to ramp up their production levels which is putting enormous pressure on the commodity's price. On Wednesday, BHP Billiton Limited (ASX: BHP) confirmed that it was on target to produce 225 million tonnes in the 2015 financial year (FY15), while Rio Tinto Limited (ASX: RIO) plans to dig up 330 million tonnes of the commodity in 2015.
Indeed, the miners are certainly feeling the pain of the commodities glut. While BHP Billiton's and Rio Tinto's cash flows are being squeezed, junior miner Arrium Ltd (ASX: ARI) has been forced to close one of its two iron ore mining precincts in South Australia, whilst also reducing its capital expenditure by 30%. The miner's shares have dropped nearly 6% for the day as a result, while they're down 87% since peaking in February last year.
Although there were signs of the price stabilising earlier in the year, iron ore is likely to continue dropping over the course of 2015 as the basic supply-and-demand dynamics continue to play out. Some analysts expect it will drop below US$60 a tonne which could prove catastrophic for some of Australia's higher cost miners.
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