The iron ore price crashed below the US$60 a tonne threshold overnight following the release of bearish forecasts from China, which is the world's largest consumer of the commodity. According to the Metal Bulletin, iron ore is now worth just US$59.30 a tonne after having fallen more than 4% during the session.
The 'New Normal'
Indeed, the writing has been on the wall for a long time. Chinese growth has been slowing at a rapid clip with the nation now predicting GDP (gross domestic product) growth of just 7 per cent in 2015, down from 7.4 per cent in 2014 which was its slowest growth rate in 24 years. It certainly appears as though China got ahead of itself in its expansion plans with Chinese leaders having now proclaimed a "new normal" of slower economic development.
Adding to the market's concerns is the tidal wave of fresh supplies hitting the market at the same time. Global mining giants, including Australia's own BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), continue to ramp up their production rates, applying more downward pressure on the commodity's price.
Recent data showed that a record amount of iron ore had been shipped from Port Hedland in February, and that record is likely to be broken again in the coming months.
What this means for you
While BHP Billiton and Rio Tinto are still making a profit in this low price environment, it is certainly concerning for the nation's higher cost miners, including BC Iron Limited (ASX: BCI), Mount Gibson Iron Limited (ASX: MGX) and even Fortescue Metals Group. Fortescue carries an enormous pile of debt and it is becoming increasingly difficult to repay as prices threaten to fall below its break-even level, hence the heavy sell-off of the miner's shares over the last 12 months.
Iron ore is expected to continue falling over the course of 2015, making Australia's mining sector a minefield to invest in. Instead of taking an unnecessarily high level of risk on the miners, The Motley Fool's top analysts have recently named their TOP STOCK to buy in 2015 which is well worth considering.
