For a commodity that symbolises strength, iron ore is looking ever weaker. On Monday, the Australian benchmark price of the steelmaking ingredient sank to $87.10 a tonne, taking the year-to-date fall to 35 per cent. The price is now just 40 cents above a five-year low.
The reason for the sharp plunge in the first half of the year was clear. The big three global producers – Vale, Rio Tinto and BHP Billiton, which all depend heavily on iron ore for their profitability – have drastically increased production and shipping volumes in 2014.
Most of this material has gone to China, which consumes about two-thirds of global seaborne iron ore. This “tsunami of supply growth” that has pushed the market into surplus has now stalled temporarily, according to Chris LaFemina, head of European metals and mining equity research, at Jefferies. The trouble is now on the other side of the equation: demand.