The iron ore price has officially crashed below the US$50 a tonne mark for the first time in a decade with fears escalating the commodity could have even further to fall.
After having lost 47% of its value in 2014, iron ore suffered its worst first-quarter performance since 1991 in the three months to March. It deteriorated a further 3.5% overnight, giving it a loss of nearly 31% since the beginning of the year, to just US$49.54, according to data from the Metal Bulletin Ltd.
Indeed, the writing has been on the wall for the commodity for a long time. At the same time as China's economic growth has been rapidly slowing, the world's largest miners have been ramping up their output in an effort to lower average production costs. The tactics employed by Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP) and Vale have been widely criticised as the increased supply is quickly squeezing the life from the world's higher cost producers.
While Chinese stimulus aimed at boosting the nation's waning housing market could provide scope for price stabilisation, the simple supply and demand economics of the situation suggest that prices will continue to fall. As reported by the Fairfax press, Westpac has forecast prices to fall as low as US$47 a tonne while others believe it could fall even lower.
At that price, even the world's fourth largest iron ore miner, Fortescue Metals Group Limited (ASX: FMG), will almost certainly be operating at a loss. Australia's junior miners are in an even worse position and could be forced to close their mines if conditions don't improve in the near-term.
