Iron Ore Prices Plummet to Six-Month Low of $124.80 per Tonne as Chinese Buyers Retreat

YouTube/Richard Redmayne

Iron ore producers in Australia are under pressure following the drop to a six-month low of prices of the key steelmaking ingredient to $124.80 per tonne. The price decline was mainly due to Chinese iron ore buyers retreating.

China is the world's biggest iron ore consumer because of the rapid pace of its industrialisation. In 2013, it imported 820 million tonnes of iron ore. China produces iron ore also, but it is of lower quality which is costlier to extract in usable quantities, so China relies heavily on premium quality ore from large Australian miners such as Rio Tinto and BHP Billiton.

The price fall brought back iron ore prices to June 2013 levels. Analysts said hard hit by this development are the pure players. IG Markets strategist Evan Lucas forecast the pressure would last "until people get their heads around where China is at in terms of their iron ore stockpiling."

Along with the drop in iron price were the shares of major iron ore miners.

Fortescue Metals Group shares were down 4.5 per cent to $5.41, Atlas Iron 4.1 per cent to 94 cents, Rio Tinto 0.75 per cent to $65.97 and BHP Billiton 0.3 per cent to $37.88.

Mr Lucas linked the recent price fall to seasonal factors such as the approaching Chinese New Year holiday.

Rio produced 55.51 million tonnes of iron ore for Q4 2013, higher than the previous year's production of 51.97 million tonnes. Reckoned for the whole of 2013, Rio's iron ore output was 5 per cent higher at 208.97 million tonnes from 198.87 million tonnes in 2012.

By the end of the first half of 2014, Rio expects to set new records for iron ore production and shipment at 290 million tones, said Rio Tinto CEO Sam Walsh.