Iron ore has been hosed again

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Having seen Chinese iron ore futures tumble by nearly 4% on Tuesday afternoon, the spot iron ore price was a relative overachiever overnight, recording a fall of only 1%.

According to Metal Bulletin, the spot price for benchmark 62% fines fell 39 cents, or 0.79%, to $49.11 a tonne. It has now fallen 13.2% since October 12, extending its decline from the start of the year to 31%. Ominously, the benchmark price is now only $4.52 away from the all time record low spot price of $44.59 struck on July 8.

In a sign that the selling pressure is unlikely to dissipate any time soon, Chinese iron ore futures continued to decline overnight. According to the Dalian Commodities Exchange the most actively traded January 2016 contract fell a further 0.57%, taking the contract price to a four-month low of 348.5 yuan.

The decline follows news that Alan Chirgwin, BHP’s president of marketing for iron ore in Singapore, believes that the price for the steel making ingredient is likely to fall below $40 a tonne in the years ahead.

“In medium term, the next few years, it’s going to be much of same, we will continue to see very modest demand growth, and strong supply growth outpacing demand. That pressure will continue to gradually push it (the price) down – because the rate of displacement will get slower,” Chirgwin told the AFR.

Chirgwin suggests that the price will be driven down to settle at a level that is the highest break-even production cost “of a major producer in Australia or Brazil”.

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