The falling iron ore price has wreaked havoc on Australia's miners this year.
BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have plunged 18% and 13% respectively since the beginning of 2014, while the junior miners, such as Arrium Ltd (ASX: ARI), Atlas Iron Limited (ASX: AGO) and BC Iron Limited (ASX: BCI) have free-fallen in excess of 80% each. Fortescue Metals Group Limited (ASX: FMG), which is Australia's third-largest iron ore miner, has dropped an agonising 54%.
Unfortunately, investors shouldn't be getting their hopes up for a brighter 2015, either.
As it stands, iron ore is trading at around US$70 a tonne, down from US$135 a tonne in January. While there could well be a rebound in price in the near-term, there are strong signs that suggest the price will drop further over the coming 12 months and in the years to follow.
To begin with, the world's largest miners continue to ramp up their production levels, which is introducing a tidal wave of fresh supply into the market. At the same time, Chinese demand growth is slowing down (and expected to peak in 2017), which is putting downward pressure on the commodity's price.
While analysts at ANZ have stated that iron ore prices won't climb above US$100 a tonne ever again, others are forecasting it to trade at US$60 a tonne (or lower) in the next 12 months. While that's bad news for Rio Tinto's margins, it's even worse for the junior miners which may struggle to continue as a going concern given their higher production costs and lower quality ore.
For investors wanting to make a profit in 2015, you would be wise to avoid this sector altogether. Instead, you might want to look at stocks offering solid dividend yields, given that interest rates could also be reduced even further…
