The iron ore slump accelerated into a higher gear overnight with the steel-making ingredient falling to a fresh five-year low. According to data from the Metal Bulletin Ltd, the commodity recorded its worst one-day fall since mid-November, retreating a further 4.3% to be changing hands at just US$64.54. It hasn't trended that low since May 2009.
While BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) both reported record production numbers last week, concerns continue to amass regarding the demand outlook in China, the world's largest importer. Adding to the pricing pressure is the upcoming Lunar New Year with steel mills reportedly cutting output in the lead up to the holiday. Simple demand and supply economics dictate that high supply and low demand will eventually lead to lower prices.
As reported by Fairfax media, Goldman Sachs has joined the chorus of analysts forecasting lower iron ore prices from here on. On Friday, the bank said that a return to a bull market was more than a decade away while at the same time revising its prediction of US$80 a tonne for this year down to just US$66. Others are saying it will drop below US$60 a tonne.
Australia's miners are certainly feeling the pinch of the crashing commodity. With iron ore down 52% since the beginning of 2014, companies such as Arrium Ltd (ASX: ARI) and BC Iron Limited (ASX: BCI) have dropped roughly 90% each, while Fortescue Metals Group Limited (ASX: FMG) has also crashed to its lowest price in nearly six years at just $1.92 per share.
While many investors had been hoping for a rebound in prices this year, the likelihood of that playing out appears to be very slim. Should the commodity's price drop much further, the situation could become catastrophic for some of Australia's mining stocks.
