Chinese market factors fuel iron ore price slump

China is the world's largest buyer of iron ore, accounting for more than 60 percent of seaborne trade, and Australian producers such as BHP Billiton, Rio Tinto and Fortescue have spent billions expanding operations in the past few years on the expectation Chinese demand will remain robust.

However, while Australia's miners can profitably export iron ore at current prices, they might need to revise their expansion plans if the price continues to slide.

"The bulk of Australian iron ore production is still profitable down to $50 per ton," said Mark Pervan, an Australia- based analyst with ANZ Research, in a report published by The Australian newspaper.

"That said an iron ore price below $80 per ton would halt or delay most expansion plans creating possible export supply tightness in two to three years' time," he said, adding that he expected prices will bounce back by 10 to $15 a ton in the months ahead.

The Bureau of Resources and Energy Economics (BREE) had forecast an average price of $110 per ton for 2014. Australia is expected to export 687 million tons of the raw material this year.

At an average price of $110 per ton, iron ore revenue in Australia would be about $75.6 billion or AU$81 billion, but if the average were to fall to the current spot price of iron ore, revenue would sink to $67.7 billion.

Goldman Sachs has forecast the price of iron ore would slide to $80 per ton as the market becomes oversupplied in 2015.

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