11.09.201403:23:53UTC+00Iron ore falls to lowest in 5 years

Increasing supplies and a reduction in demand has driven iron ore to its new lowest value in five years.

The commodity used in the production of steel has fallen by 40% so far this year to be the worst performer among metals and bulk commodities, but still remains critical for the operations of some of the world’s largest mining companies such as Rio Tinto, BHP Billiton, and Vale.

Weakening demand in China, the largest user of iron ore which buys two thirds of the world’s supply, has compounded the metal’s decline brought on by climbing global supplies. Statistics released earlier this week revealed that the country imported 9% less iron ore in August compared to in July at only 74.9 million metric tons due to steel mills reducing their operations to the lowest level since March.

Prices for iron ore for immediate delivery in China dropped by $1 dollar to $82.20 per ton yesterday just as analysts from investment firm Goldman Sachs announced an end to the period enjoyed by the iron ore industry that was marked by above trend profitability. Producers of the metal have increased their low cost capacity in recent months in hopes of offsetting declining prices.

 Goldman’s analyst Christian Lelong explained the announcement by saying that, “In our view, 2014 is the inflection point where new production capacity finally catches up with demand growth, and profit margins begin their reversion to the historical mean; in other words, the end of the Iron Age is here.” Goldman forecasts iron ore to fall to an average price of $80 per ton in 2015, $79 in 2016, and $78 in 2017, enough for large producers to still make profits.