Something has happened that was not supposed to happen for about 15 years. The market price of iron ore has fallen below US$90 per tonne (currently at US$88 per tonne).
The ‘experts’ are saying that it will probably settle at around US$85 per tonne which will be about 45.7 percent of what it was at the start of the year. That is a massive 54.3 percent fall in value over just eight months. No resource has fallen by so much in such a short period.
Iron ore producers are scrambling for ways to cut costs and this is resulting in projects being shut down and significant manpower cut-backs.
So, you might be asking, when will the price go back up again?
Well if you follow the thinking of the likes of the head of BHPB, Marius Kloppers, this totally unexpected massive dive in the price of iron ore will be short-lived (page 1 of the lift out in Thursday’s AFR) and prices will lift back up in the short term—probably before Christmas.
It is going to be interesting to see what happens because even just a 12 month drop in the iron ore price could have a huge impact on the Australian, and especially the Western Australian, economy.
On the upside, if you can call it an upside because such a move is actually a negative indicator in economic terms, it might force the Reserve Bank to allow another one or two quarter-of-a-percent decreases in the wholesale cost of money.