Iron ore price at almost two-year low
The spot iron ore market is sinking under the weight of new supply.
The benchmark price for 62 per cent iron ore as assessed by the Steel Index has just declined below the US$89 per tonne level for the first time since September 2012.
Gone is the golden age of supercharged prices, eye-watering profits for producers and boom times for iron-rich regions such as the Pilbara in Australia.
The new iron age will be characterised by a Darwinian struggle for survival, from which only the fittest will emerge.
Speaking to analysts after the announcement of second-quarter results, Rio Tinto chief executive Sam Walsh dismissed any suggestion that the company should hold back from increasing production at a time when demand from China was cooling.
"Now is not a time for the best iron ore producer in the world to take a step back," he said. "Now is the time for others to really feel the consequences of the price against their operating costs and for them to make decisions."
By "consequences", Walsh (pictured) means casualties will grow as higher-cost and fledgling producers feel the pricing pain.
Rio and fellow iron ore behemoths such as Brazil's Vale and BHP Billiton hope the battle will be a quick one. It may not turn out that way, though. Only the price will tell how efficiently the market absorbs the wave of new supply.
Everyone knew this battle was coming.
The price of iron ore surged between 2009 and 2011, peaking at US$191.90 in February 2011, as producers struggled to match China's appetite for steel to be used in its infrastructure and property boom.
Sown in that time were the seeds of current oversupply as established producers such as Rio embarked on major expansions and a host of juniors rushed to join the iron ore bonanza.
Weaker players are already falling by the wayside. Brazil's MMX said last week that it was temporarily closing its last producing mine. London Mining, a fledgling producer operating in Sierra Leone, is struggling with both shrinking operating margins and the regional impact of the Ebola virus.
It was "a binary investment", said analysts at Investec. "Either it will succeed in finding a strategic partner and thereby realise its inherent value, or it will not and face bankruptcy."