Iron Ore Price Dips to $90.30
Prices of iron ore dipped further on Wednesday to $90.30 per tonne, indicating worse days ahead for Australia's resource sector. The $4.50 decline, reckoned since May, is equivalent to a 38 per cent fall.
Based on spot prices during the first half of 2011, it is a 50 per cent drop from the record level of $180 per tonne. Analysts have forecast that iron ore prices could further decline to $80 before it would recover.
Baoshan Iron and Steel, a major buyer of Australian iron ore, warned that global demand for the commodity would remain subdued and is at risk of further declining.
Despite the weakening iron prices, the Fortescue Metals Group (ASX: FMG) is optimistic that prices of the commodity, Australia's largest export earner, would recover in the long-term based on the miner's expectation of strong economic growth of China at 7 to 8 per cent growth rate. China is Australia's largest buyer of the commodity.
As proof of Fortescue's confidence, Fortescue Chairman Andrew Forrest invested another $40 million in the firm despite the 15 per cent drop in FMG share prices the past week. With his investment, Mr Forrest owns almost one-third of the mining giant.
"I certainly expect prices to bounce . . . I think it's been completely overdone," The Sydney Morning Herald quoted Mr Forrest.
He attributed the sharp drop in iron ore prices to fast depletion of inventory stockpiles by distressed Chinese steel mills, which he expects to resume buying the commodity in the next few months to continue the construction of buildings in China.
Kerry Strokes, another mining and media tycoon, said the country's economy would withstand the slump in commodity prices and China's slowdown.
"Our mining industry is sound. We may have to take the tops and the bottoms off, but at the end of the day we have a very sound opportunity to build long-term futures as a supplier to our eastern neighbours, including China and Japan and India," Mr Strokes said.
Tim Murray, investment analyst of J. Capital Research which is based in Beijing, forecast an improvement in iron ore prices by October.
However, reports said that China's largest steel makers are planning to shutter unprofitable capacity permanently during the last few months of 2012.