What? Iron ore miners Fortescue Metals Group Limited (ASX: FMG) and Arrium Ltd (ASX: ARI) shares fell between 4% and 5% on Friday morning, extending their year-to-date losses to 27% and 15% respectively.
What Happened? Well, as investors may have guessed, the iron ore price fell overnight. The price for immediate delivery to the port of Tianjin in China was 1.3% lower at $US54.80 a tonne, close to the estimated cost of production of both companies.
The share price falls also come after Rio Tinto Limited (ASX: RIO) boss Sam Walsh and Roy Hill Mine boss Gina Rinehart slammed Fortescue Chairman Andrew Forrest for his comments earlier in the week about capping local iron ore supply.
Fortescue's rival iron ore giants believe that capping the Australian ore output would not be effective or smart in the current global conditions, a stance seemingly echoed by many analysts around the world.
What Now? Arrium and Fortescue shareholders have been on the receiving end of a 61% and 87% fall in their respective holding values over the last 12 months. Some analysts believe that this is the end of the worst, while others see much more pain down the track.
Interestingly, most economists see the iron ore price stabilising around the US$70 mark long-term, however an interesting article I read last week implied that this could have something to do with recency bias with the iron ore price hitting US$190 not that long ago.
Could the iron ore price be headed for $20?
I don't know, but I do know that the companies mentioned above have little or no competitive advantage over their peers, especially if the price falls further. I prefer to invest in companies that have long-term structural advantages over peers that ensure they can make profits through good times and bad.
