The price of iron ore has again reached a new five-year low overnight amid continued worries about growing supply during a period of stable demand.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US78.60 a tonne, down 1 per cent from its previous close of $US79.40 and its lowest mark since September 2009.
The commodity, which has seen just three positive trading days in the past 28, is now down over 42 per cent on the year.
The falls have been in response to a sharp lift in supply from sector heavyweights BHP Billiton, Rio Tinto, Vale and Fortescue Metals Group, with a rare positive for Australian firms being the recent dip in the Australian dollar.
The local unit has yielded over 6 per cent in the past three weeks, offsetting the falls in the price of the commodity over the same period. However, the currency was slow to fall and its 2 per cent decline this year comes well short of the 42 per cent retreat for iron ore.
The latest dip comes amid comments from former Rio boss Tom Albanese that the iron ore market was ripe for a correction.
"This is a realistic market response, and one that was actually quite well-anticipated five years ago," Mr Albanese, who now leads Indian-based miner Vedanta, said.
"If you look at the forward curve two years ago, if you look at the estimates of supply and demand, there are no real surprises in the present market place that had not been anticipated."
Similar sentiments have been echoed by BHP, with the miner's marketing president Mike Henry suggesting the slump had been in line with expectations.
“It is something we have been talking quite openly about for a number of years now,” he said, according to The Australian.
“It’s less about demand side drivers than it is about supply side drivers. Over the past year you have seen a lot of new low-cost supply come to market and as that happens, as production does a better job of keeping up with demand, we are seeing prices revert back to more normal levels.”
Concerns about the iron ore price had an impact on the London-listed stock of both BHP and Rio overnight, with the mining giants giving up 2.9 per cent and 2.4 per cent, respectively.
Source: Business Spectator
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