Iron ore prices are in freefall.
According to Metal Bulletin’s iron ore index the spot price for 62% fines has dropped 10.1%, the biggest daily fall on record, to $44.59 a tonne. It’s now down 25% in just seven days. Here’s the chart:
The price collapse is being driven by two main factors:
- Evidence that supply is continuing to increase out of the world’s biggest producer countries, Australia and Brazil, and
- Concern that Chinese demand is tanking as the economy slows.
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.
Economists estimate that each $1 fall in the iron ore price results in around $300 million in lost tax revenue for Australia. So today’s fall alone of $5 in the price equates to roughly $1.5 billion being knocked off the budget bottom line.
The sharp and sudden decline will raise fresh questions about the viability of some iron ore miners.
Fortescue Metals Group fell 6% on the ASX today following yesterday’s 8% fall in the ore price. Investors will be taking a close look at the stock tomorrow.
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