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Iron ore has taken another tumble overnight as Westpac forecasts the price of the steel-making ingredient to hit $US47 per tonne.
The price of iron ore, for immediate delivery to the Qingdao port in China, slumped 2.5 per cent to $US51.35 per tonne overnight on Tuesday, according to Metal Bulletin – it has fallen for five-straight sessions, losing 8.1 per cent and is on track for its sixth straight weekly loss.
Iron ore has dropped more than 25 per cent this calendar year and has plummeted more than 73 per cent since its peak of $US191.7, reached in 2011.
Iron ore has been hitting fresh six-year lows for the last week – it has not sunk below this level since the daily pricing index began in 2009. The price of steel has had six-straight weekly falls.
Westpac is forecasting iron ore to hit a low of $US47 per tonne this year before recovering to $US69 per tonne, on average, in 2016.
"It is very unlikely that 2015 will bring much joy for spot iron ore prices. For the near term Australia and Brazil will continue to expand production, even at current prices, maintaining downwards pressure," Westpac economist Justin Smirk said.
"As noted, BHP and Rio Tinto can deliver into the Chinese market for around $US40 per tonne and have an objective to drive costs even lower."
In the short-term, ANZ does believe iron ore can fall below $US50 per tonne, but it will recover, although only marginally.
ANZ is forecasting iron ore to be around $US58 per tonne at the end of 2015, with a slight improvement to an average of $US60 per tonne in 2016.
China's property sector, which is one of the world's biggest consumers of steel and therefore iron ore has continued to weaken even though supply has increased.
China new home prices have fallen for six straight months, weighing on China's massive property sector, despite interest rates cuts from the People's Bank of China.
In February, new home prices fell in 66 or the 70 cities measures, while sales also declined.
Property accounts for 24 per cent of steel use China, so any downturn in property, hurts steel, which rolls on down to iron ore.
"The market is focusing on the large supply of cheap ore coming out of Australia and, for now, this is defining the market," Mr Smirk said.
"Thus a dip down through $US50 per tonne is very likely and we have pencilled in a monthly low of $US47 per tonne sometime in the second half of this year with a quarterly average low of $US50 per tonne in the December quarter."
