Mining giant BHP Billiton Limited (ASX: BHP) has conceded that iron ore is unlikely to ever top US$100 per tonne again, based on the massive supplies now hitting the market compared to the waning Chinese demand.
In what has been one of the most volatile years on record for iron ore, the commodity has lost nearly 50% of its value in 2014 to now be trading at just US$69.37 a tonne. While some estimates suggest it could average around US$65 in 2015, others have predicted it could fall into the US$50s which would almost certainly wipe-out some of the nation's higher cost producers from the market.
BHP delivered the outlook as it celebrated the delivery of its one billionth tonne of iron ore to China – a milestone which has been almost 42 years in the making. Beginning in 1973, it took almost 30 years to ship the first 100 million tonnes and just 12 more to make it to the one billion mark. Based on BHP Billiton's current rate of production, it will take just five more years to hit two billion.
However, BHP and fellow iron ore giant Rio Tinto Limited (ASX: RIO) are facing a huge dilemma. While the pair have faced enormous levels of scrutiny this year due to their aggressive expansion strategies, one of the industry's top officials, Li Xingchuang, believes demand could peak at 740 million tonnes in 2017. Almost a decade earlier than had been forecast by the miners themselves.
Should this scenario play out, the iron ore price could fall substantially further, thumping the miners' margins and long-term growth prospects.