The bottom is falling out of the iron ore price

The bottom is falling out of iron ore priceThe iron ore price plummeted on Monday as negative sentiment overwhelms a market bracing for a supply glut and falling consumption.

The 62% Fe benchmark import price including freight and insurance at the port of Tianjin tracked by The SteelIndex tanked $2.60 or 3.9% to $63.30 a tonne on Monday.

The price of the steelmaking raw material is trading at the lowest levels since early May 2009.

So far in 2015 the price has fallen 12.5% following a year in which the commodity nearly halved in value.

Iron ore hit a peak above $190 a tonne in February 2011.

In China, which consumers more than 70% of world seaborne trade, steel mills are cutting back on production as property and infrastructure investment in the country slow markedly after decades of breakneck growth.

China’s economy grew at its slowest pace in nearly a quarter of a century last year with annual expansion of 7.4%, last seen when the country faced international sanctions in the wake of the 1989 Tiananmen Square massacre.

China’s steel output continued to grow in 2014, but at a far slower pace at less than 1% compared to the year before, according to the World Steel Association.

Even more than softening demand increased supply has been blamed on the fall in the price.

Global production of iron ore rose by an annual average of over 6% from 2010 to 2014 despite the fall in prices and is set to expand even further this year.

The growth in output came mainly from the big three producers – Vale, Rio Tinto and BHP Billiton – which even at today's price enjoy fat margins thanks to cost of production of only around $25 a tonne.

Goldman Sachs released its estimates for iron ore on Friday. The investment bank cut its outlook for iron ore for this year to $66 a tonne this year, down substantially from an earlier estimate of $80:

"Significant overinvestment to date will ensure that the market is well supplied, while demand from the Chinese steel sector is maturing. A painful war of attrition awaits."