Iron ore prices going from bad to worse — below $50

After sinking to an all-time low of $47 on April 2nd, ore prices rallied and hit a high on June 11th as stockpiles at Chinese ports sharply fell, but with inventories on the rise once more, pricing has tumbled 20% since then, putting it into official bear market territory.

“Key concerns are expanding low-priced supplies from Australia and Brazil, while demand slows from China”, ANZ analysts said in a note. This is having a negative impact on iron ore prices, a major source of national income.

LAUNCESTON, Australia, July 8 (Reuters) – Australia’s major iron ore miners have had a torrid year so far, battling low prices, engaging in an ugly slanging match with each other and dealing with persistent questions about the wisdom of their expansion strategies.

Iron ore prices were falling by 5.4% to $52.28 a dry metric ton, according to a price index compiled by Metal Bulletin.

What the report does do is present a positive outlook by highlighting the iron ore sector’s contribution to the Australian economy.

But many analysts predict a fall to below $US40 in the next year or two.

Add in to this the mounting concern about the potential fallout from the Chinese stock market rout and it’s a crushing environment for iron ore producers.

“We think that there’s been too much construction of residential apartments in China”, said UBS global commodity analyst Daniel Morgan, who believes extra supply coming to the market later this year will continue to push down prices.

The extended collapse in prices has eroded gains in the second quarter of the year, when iron ore climbed from a decade-low as producers’ shipments missed expectations. PJP said any intervention was likely to be “ineffective at best and counter-productive at worst”.

The last few months has seen the majority of iron ore mining companies desperately making cuts to reduce operating costs in order to push their break-even price as low as possible.

However the company warned that it was not protected beyond the end of December and the ability to lock in prices and what they would be was unknown.

So far executives from both BHP and Rio have maintained they have followed the correct strategies, but the poor performance of the share prices suggest investors don’t share this view, or at least not entirely.

The fast-changing makeup of the iron ore market indicates it will be an industry that, by and large, will only support the biggest miners.