The iron ore price plunged 5.7% overnight to US$54.99 a tonne, and has now lost 18% of its value in just over a week.

Technically, the commodity has entered a bear market, after falling 22% from its April high of US$70.46 a tonne.

The slide in iron ore prices came on the back of a fall in Chinese futures – which fell the maximum 6% allowed. Chinese officials are moving further to clamp down on rampant speculation in the futures markets, and the Dalian Commodities Exchange said on Monday that it would continue to strengthen its market monitoring and was considering raising transaction fees again to curb speculation risks.

According to Reuters, a number of Chinese commodities exchanges have stepped up efforts in recent weeks to curb surging prices driven mostly by speculation, and raising fears of another bubble about to burst following last year’s stock market collapse.

And according to Bloomberg, daily turnover on the nation’s futures markets has jumped the equivalent of US$183 billion in just two months. Market turnover jumped from an average of US$78 billion in February to US$261 billion on April 22.

And reports suggest most of that is coming from retail investors, with most of the additional trading volume coming in the night session – when many workers have finished their day jobs.

Bloomberg says that data shows the average holding period for rebar (steel) and iron ore contracts in April was less than 3 hours.

China’s domestic share markets lost US$5 trillion in value last year, and authorities may trigger another collapse in commodities futures by trying to stem the speculative tide. The problem is that spot prices are now closely aligned to movements in the futures market.

Weak Chinese economic data out overnight also weighed heavily on BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: BHP), along with other large miners Anglo American, Glencore, Vedanta and Brazil’s Vale. That is likely to carry through onto the ASX today, with Fortescue Metals Group Limited (ASX: FMG) directly in the firing line.

It’s also playing havoc with last week’s Australian Budget forecasts of US$55 a tonne (free on board) in 2016/17, which doesn’t take into account freight costs. As our biggest export earner, a US$10 per tonne fall in the iron ore price means a $6.1 billion reduction in nominal GDP in 2016/17 and $13.4 billion in 2017/18.

Foolish takeaway

Trading in iron ore futures overnight suggests the iron ore price could sink again tonight, leading to more falls in amongst the iron ore miners on the ASX tomorrow, adding to today’s likely carnage.

It’s not going to be pretty.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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.