Australia's iron ore miners have started the new financial year on the back foot following a heavy fall in the price of iron ore overnight.
The commodity, which is used as a key steel-making ingredient, plunged 3.2% to just US$59.35 a tonne, according to data from the Metal Bulletin. It's the first time in weeks iron ore has traded below US$60 a tonne and although it remains well above its 10-year low levels recorded in April, economists fear that this could be the beginning of another steep decline.
While China's rapid growth acted as the key driver behind the industry's success over the last decade or so, that growth has slowed considerably which has resulted in less demand for iron ore. At the same time, the world's largest producers have ramped up their production rates to squeeze their smaller rivals from the market, resulting in a massive supply and demand imbalance.
The overnight fall appears to have come as a result of fresh forecasts from Australia's Department of Industry and Science, which estimates exports to grow 4% in 2015 to 748 million tonnes. In 2016, the addition of Gina Rinehart's Roy Hill operations could see exports grow by 10% to 824 million tonnes.
While the department expects the commodity's price to average US$52.10 a tonne in 2016, other economists are far more bearish. Capital Economics, for instance, believes it will trade below US$40 a tonne by the end of this year, while Goldman Sachs says it is headed back below US$50 a tonne. Last night's heavy decline may have been the first step towards those projections becoming a reality.
Fortescue Metals Group Limited (ASX FMG) is one of the more susceptible miners to a fall in the iron ore price due to its enormous debt load, as is Arrium Ltd (ASX: ARI) which maintains higher operating costs than its larger rivals. The pair have plunged 5.9% each today to trade at $1.79 and 12.7 cents, respectively.
Unfortunately, the nation's heavyweights haven't managed to avoid the carnage, either. BHP Billiton Limited (ASX: BHP) is down 2.1% at $26.48, while the more concentrated Rio Tinto Limited (ASX: RIO) has fallen 1.9% to $52.72 per share.