Overnight on Friday the spot price of iron ore benchmark 62% fines fell to its lowest level in almost two weeks as trading weakened ahead of the upcoming Lunar New Year celebrations.
According to Metal Bulletin the benchmark 62% fines finished the week with a 0.7% drop on Friday to US$80.41 a tonne.
Whilst this is still significantly higher than this time last year and isn't yet a concern for the likes of Fortescue Metals Group Limited (ASX: FMG), Rio Tinto Limited (ASX: RIO), and Atlas Iron Limited (ASX: AGO), I can't help but feel that this could be the start of much steeper declines.
A real test for iron ore will come in the next week or two when China shuts down for its week-long Lunar New Year celebration.
Without Chinese speculators propping up the price, I feel there's a good chance we will see weakness start to form in prices.
After all, the majority of market observers and investment banks agree that prices are artificially high presently and prone to a sharp correction.
Even a US$10 a tonne forecast upgrade by ratings agency Standard & Poor's puts the iron ore price at an average of US$55 a tonne in 2017, according to a report in The Australian. That's almost a third less than current prices.
If prices fall to that level then I would expect to see the iron ore miners dragged down significantly.
For now I see little upside potential for the iron ore miners, but a significant amount of downside potential. As a result, the risk/reward on offer here is simply not compelling enough to make an investment as far as I'm concerned.