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Iron ore plummets: What every investor needs to know

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Credit: Simon Cunningham

Australia’s iron ore miners have come under enormous selling pressure today after the iron ore price continued to deteriorate overnight. According to data provided by the Metal Bulletin Ltd, the commodity, which is a key ingredient used for making steel, plummeted 6% to trade at just US$55.63 overnight.

That compares to a recent high of more than US$65 with many analysts expecting the commodity to fall below US$50, or even US$40, by the end of the year. The latest decline followed the release of new data which showed that iron ore exports from Port Hedland, which is Australia’s largest iron ore loading port, surged to an all-time high of 38.4 million metric tonnes in June which compares to the previous record of 38 million metric tonnes recorded in May.

It also represents a massive 14% increase compared to the same time last year, highlighting that the nation’s biggest producers continue to pump the market with supplies it simply does not need. Indeed, this is consistent with forecasts provided by Australia’s Department of Industry and Science earlier in the week, which estimated exports to grow 4% in 2015 to 748 million tonnes, and another 10% in 2016 to 824 million tonnes as Gina Rinehart’s Roy Hill operations start to have an impact.

The department expects the commodity’s price to average US$52.10 in 2016 while Capital Economics believes it will trade below US$40 by the end of the year (a definite possibility).

As one would expect following such a severe plunge in the commodity’s price, Australia’s iron ore miners have come under selling pressure today as investors reassess the outlook for the sector.

Fortescue Metals Group Limited (ASX: FMG) has plunged 3.4%, while its two larger rivals, BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) crashed 1.2% and 0.9% respectively.

Meanwhile, Arrium Ltd (ASX: ARI), BC Iron Limited (ASX: BCI) and Mount Gibson Iron Limited (ASX: MGX) all fell between 2.4% and 5.9%. Given the headwinds facing the sector, the risks associated with an investment in any of the iron ore miners are high. As such, investors would be far better off focusing on other areas of the market with less risk and far greater future potential.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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