The iron ore price is in free-fall

Iron ore fell to a record low on a spot price basis on Wednesday with the Northern China 62% Fe import price including freight and insurance (CFR) dropping 2.4% to $40.60 a tonne.

After a strong recovery from its July low, the steelmaking raw material has been on a relentless decline since mid-October. Losses so far this year come to 43%. Today's price compare to $190 a tonne hit February 2011 and an average of $135 a tonne in 2013 and $97 last year.

For an iron ore price below $40 you have to go back to 2007 when annual contract pricing between the Big 3 producers – Vale, Rio Tinto and BHP Billiton – and Chinese and Japanese steelmakers were still the industry norm.

The iron ore price has become a one way bet as an ever deepening glut combine with slumping demand to push down the price.

Vale this week lowered its forecast for 2016 shipments by 10% due to outages at Samarco,  but the world's top producer  remains on track to add 100 million tonnes of capacity compared with 2015 levels within just three years.

Number two Rio Tinto is well on its way to reach 360 million tonnes in the next few years, while BHP Billiton is on target to grow capacity to 290 million tonnes per year some time during 2017. World number four producer Fortescue Metals added 5% to its targeted output hitting a rate 165 million tonnes per year in July. Together with Anglo American, the big five is set to command nearly 85% of the seaborne market

That has not deterred others from entering the market with Gina Rinehart's Roy Hill  mine in Australia starting shipments just this week. The operator, a joint venture with Korean, Japanese and Taiwanese steelmakers, plans to produce 35 million mt/year of iron ore in 2016 and 45 million mt/year in 2017 before ramping up to full capacity of 55 million mt/year in 2018.

The demand side is not looking much better either with Shanghai rebar prices dropping to a fresh record low with the most active May futures contract exchanging hands for 1,652 yuan or $258 a tonne on Wednesday.

The decline in Chinese steel consumption is accelerating with use falling –5.7% to 590.47 million tonnes in the January to October period, industry group China Iron and Steel Association said in November. That's tracking way below estimates by the  World Steel Organization which forecasts steel demand in China will shrink by -3.5% this year.