If you've been a regular reader of fool.com.au over the past year or more, you'll know that a number of Foolish contributors and analysts called a fall in iron ore prices well in advance of when the landslide began.
Foolish writers have remained firmly in the bearish camp ever since, with virtually every contributor warning readers off the sector, thanks to a combination of rampant oversupply, cut-throat business tactics, and a big question mark over the future of Chinese steel demand.
Our stance has been justified so far, with the iron ore price dropping below US$50 in recent weeks, and producer Atlas Iron Limited (ASX: AGO) entering a voluntary suspension of its shares in order to review its operations.
Foolish contributors have also been raising question marks over other producers like BC Iron Limited (ASX: BCI), Mount Gibson Iron Limited (ASX: MGX), and debt-laden Fortescue Metals Group Limited (ASX: FMG).
With BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) continuing to ramp up production, only the gamest of market-watchers would call a price bottom just yet.
The whole sector got a little more interesting today, when Fairfax media reported that the Chinese government was halving taxes on Chinese iron ore producers from May 1.
While this is expected to save producers only around $1.27 per tonne, it illustrates China's commitment to strengthening its iron ore supplies and raises the question of more pressure on the sector over the medium term.
China has regularly attacked overseas producers (who have better quality reserves and lower costs) like Rio and BHP for controlling the market, believing that they often violate the spirit of a free market.
In addition, the Chinese government appears to have a minor obsession with iron ore assets, buying into numerous companies and investing heavily in the sector in order to secure China's iron ore supplies and reduce the reliance on foreign-owned companies.
With a number of Australian companies staring into the black hole of financial oblivion, I wouldn't be surprised to find Chinese buyers waiting in the wings to pick up failed companies.
Warning: This doesn't necessarily mean you'll receive anything for your iron ore shares if your company goes bust.
China has showed in the past it is willing to endure losses on its mining operations in order to maintain its supply, and the prospect of more Chinese-owned mines could see demand for publicly-traded iron ore shipments (Like those from Rio or BHP) stagnate over the medium term – particularly if Chinese construction grinds to a halt, as many are predicting.
With all these factors in mind, a punt on iron ore companies today (other than market-makers Rio or BHP) looks risky at best, and potentially catastrophic at worst.
