MENU

Iron ore falls to lowest level in 6 years: What you need to know

Credit: Motley Fool Ltd. All rights reserved.

The iron ore price plunged to its lowest level in at least six years overnight as concerns continue to amass regarding rising supplies and sinking global demand.

Prior to last night, the commodity traded for a low of just US$44.59 in July this year, before rebounding strongly to trade near US$60 a tonne. However, the optimism soon wore off as the world’s biggest miners continued to ramp up their supplies at a time where China’s growth was clearly slowing.

The commodity is now on track to record its third consecutive annual retreat after falling another 1.9% overnight to just US$43.89 a tonne, according to the Metal Bulletin. At that price, it’s likely that some of Australia’s iron ore miners are already operating at a loss and, with further falls expected, could be forced to close their mines at some point in the future.

As it stands, miners such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) remain somewhat protected due to their low operating costs, but even their earnings are coming under enormous pressure. Fortescue Metals Group Limited (ASX: FMG) has also been frantically cutting costs but remains a risky bet due to its hefty debt load.

Smaller miners such as BC Iron Limited (ASX: BCI) and Mount Gibson Iron Limited (ASX: MGX) are also dangerous bets.

Although there could come a time to buy the miners at some point in the future, I don’t believe it would be the best move today. Indeed, the iron ore rout is expected to continue in 2016 with some analysts suggesting the price will fall south of US$40 a tonne. Colleague Mike King thinks that may even be optimistic and prices could fall even further.

With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) still trading well below its high from March, I think investors would be better to look elsewhere rather than taking an unnecessarily high level of risk in the mining sector.

A Billionaire's Investing Secrets - and 2 New ASX Ideas for You

Now you can discover the investing secrets of $60 BILLION man Warren Buffett -- widely recognized as the world's greatest investor. Plus, you'll get two brand new ASX ideas! Your copy of The Motley Fool's brand-new report "The Wisdom of Warren Buffett -- Plus 2 ASX Shares Buffett Could Love" is FREE when you click here.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.