The iron ore price managed to rise 15 cents to US$54.81 a tonne, according to the Metal Bulletin, but the minor recovery could be short-lived with Citigroup expecting the commodity to slump below US$50 in the near future.
Iron ore has lost an alarming 59% of its value since January 2014 due to a shrinkage in Chinese steel demand, coupled with a tidal wave of fresh supplies from the world's largest mining companies, being Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP) and Brazil's Vale. It is now set to fall even further – possibly as low as US$40 a tonne – with China having recently forecast economic growth of just 7% this calendar year (its lowest level in more than 15 years).
Of the miners, BHP Billiton and Rio Tinto are both well equipped to weather the storm, although their margins and cash flows are already coming under heavy pressure. Fortescue Metals Group Limited (ASX: FMG), which is the world's fourth largest iron ore miner, isn't coping so well with some estimates suggesting the iron ore price has slipped below the miner's breakeven level. Of course, a weaker Australian dollar and lower oil prices will help Fortescue reduce its costs, but the immediate future is still looking rather bleak for the miner and its shareholders.
The nation's smaller miners are in even more trouble with many facing the threat of closure if prices don't recover soon. Smaller miners, such as Mount Gibson Iron Limited (ASX: MGX) and BC Iron Limited (ASX: BCI), run higher cost operations and produce lower quality ore than the bigger players, meaning they can't recognise the full price upon sale. The pair have fallen by 78% and 92% respectively since January 2014, reflecting the dire situation that both are in.
