Look out below: Iron ore drops below US$140 a tonne

You may not have noticed.

Amid two ripper results from ANZ Bank (ASX: ANZ) and Westpac Banking Corporation (ASX: WBC) this week, including higher dividends from ANZ and a special dividend from Westpac, no one appears to have noticed that the iron ore price has fallen below US$130 a tonne.

Overnight, the commodity shed US$4.50 to hit US$129.40 a metric tonne.

So much for Fortescue Metals Group (ASX: FMG) chief executive Nev Power’s recent prediction that the price would hover around US$140 a tonne in the short term, because of low iron ore stocks. Mr power’s prediction of prices above US$120 a tonne of the long term appears to be more accurate.

Both Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) have predicted lower prices, with analysts generally agreeing that long-term prices of around US$120 a tonne are most likely. Brazil’s Vale, the world’s second-largest mining company says it will be difficult for the price of iron ore to fall below US$110 a tonne, as high cost producers are forced from the market, and iron ore supply is cut.

Fortescue, Rio and BHP plan to add a combined 235 million tonnes of new production by 2015, despite demand from China, the world’s largest steel maker and biggest consumer of iron ore, expected to taper off. Economics 101 says rising supply and falling demand means lower prices.

For Rio and Fortescue especially, falling iron ore prices will have a significant impact on their bottom lines, with Fortescue a pure-play iron ore miner and Rio’s iron ore division contributing around 90% of its earnings in 2012. BHP is less exposed, with significant earnings from petroleum and coal and other base metals.

Foolish takeaway

While no-one has really noticed the falling iron ore price so far – if the price continues to slide, expect miners and the commodity price to become front and centre news. Resource stocks that have taken a pummelling in the last month or so, could see further falls in their share prices.

Limited oil supply and growing demand mean oil prices are likely to rise over time. Position yourself to profit from this trend — and get 3 more investment ideas right now! — with The Motley Fool’s FREE research report, “3 Oil Stocks to Send Your Portfolio Gushing Higher”.

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King owns shares in BHP.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!