Iron ore falls to lowest level in 6 years: What you need to know

Falling commodity prices are bad news for BHP Billiton Limited (ASX:BHP) and Rio Tinto Limited (ASX:RIO)

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The iron ore price plunged to its lowest level in at least six years overnight as concerns continue to amass regarding rising supplies and sinking global demand.

Prior to last night, the commodity traded for a low of just US$44.59 in July this year, before rebounding strongly to trade near US$60 a tonne. However, the optimism soon wore off as the world's biggest miners continued to ramp up their supplies at a time where China's growth was clearly slowing.

The commodity is now on track to record its third consecutive annual retreat after falling another 1.9% overnight to just US$43.89 a tonne, according to the Metal Bulletin. At that price, it's likely that some of Australia's iron ore miners are already operating at a loss and, with further falls expected, could be forced to close their mines at some point in the future.

As it stands, miners such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) remain somewhat protected due to their low operating costs, but even their earnings are coming under enormous pressure. Fortescue Metals Group Limited (ASX: FMG) has also been frantically cutting costs but remains a risky bet due to its hefty debt load.

Smaller miners such as BC Iron Limited (ASX: BCI) and Mount Gibson Iron Limited (ASX: MGX) are also dangerous bets.

Although there could come a time to buy the miners at some point in the future, I don't believe it would be the best move today. Indeed, the iron ore rout is expected to continue in 2016 with some analysts suggesting the price will fall south of US$40 a tonne. Colleague Mike King thinks that may even be optimistic and prices could fall even further.

With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) still trading well below its high from March, I think investors would be better to look elsewhere rather than taking an unnecessarily high level of risk in the mining sector.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »