Iron ore prices slump to 10-year low, mining stocks pummelled

Nearing the close of Asian trading on Thursday, benchmark iron ore for immediate delivery ex-Tianjin, China was trading down 3.9% at $49 per tonne, shedding $2 overnight. The price is the lowest on record since the fourth quarter of 2004.

Metal Bulletin reported a marginally better ex-Qingdao, China iron price of $49.53 per tonne. However, even the said level is the lowest since May 2008, according its data series.

Thursday also marked the sixth day in a row of declining iron ore prices in China as the outlook continues to remain bleak with mining stock bearing the brunt of the slump.

After ending the Australian trading session in the red, mining stocks carried over the negativity to London. At 10:38 on Thursday, BHP Billiton was trading down 31.50p or 2.14% at 1438.50p, Antofagasta down 12.50p or 1.71% at 721p, Glencore down 3.95p or 1.39% at 280.15p, while Anglo American was down 14p or 1.38% at 1002.50p.

A plethora of analysis firms and investment banks have downgraded their respective forecasts for iron ore. Deutsche Bank currently has the most pessimistic market forecast predicting a further decline to $40 per tonne before things get better. UBS, Morgan Stanley, Societe Generale and Barclays also have negative forecasts with their average projected floor of $50 already having been breached.

The year began with the iron ore prices averaging $135 per tonne, a far cry from the peak price of $185 recorded back in 2011. The ongoing slump is causing consternation in Australia; the world’s leading producer of iron ore.

The Australian Treasury’s projection of $60 per tonne needed for the sake of fiscal balance comes across as overtly optimistic. Pressure is growing on Treasurer Joe Hockey to explain how the Tony Abbott administration intends to respond to the crisis.

According to most market surveys, the Reserve Bank of Australia is now odds-on to cut its interest rate from 2.25% to 2.00% when it meets on 7 Apr.

Earlier Colin Barnett, Premier of Australia's Western Province, criticised mining heavyweights BHP Billiton, Vale and Rio Tinto, calling their reading of the market situation "dramatically wrong".

"They have been putting too much iron ore into the market and...precipitated a continuing downward trend in iron ore prices. This has been one of the dumbest corporate plays I think I've ever seen," Barnett told ABC Radio.

Separately, the chairman of Fortescue Metals Group is facing an investigation by the Australian Competition and Consumer Commission (ACCC), after publicly urging his competitors to "cap production" and support prices.

According to an ABC News report on 24 March, Andrew Forrest, the billionaire founder of the world's fourth-biggest iron ore exporter, said: "I am absolutely happy to cap my [Fortescue] production right now. All of us [producers] should cap our production now and we'll find the iron ore price will go straight back up to $70, $80, $90 per metric ton."

A spokesperson for Fortescue said the remarks, made at a business forum in China, were misinterpreted as Forrest was only trying to "bring attention to the matter."