The price of iron ore was has been smashed in recent days with it dropping to US$104.70 a tonne yesterday.
The price is some 25 per cent down on the start of the year. It is a big fall for sure but just how worrying is it?
Well, the price of iron ore is, in USD terms, still 550 per cent higher than in 2004; it is 210 per cent higher than at the end of 2006 and over 70 per cent higher that the level in the middle of 2008.
These are pretty spectacular gains in themselves, but all the more so when one considers the fact that the volume of exports of the stuff has increased by over 300 per cent in the past decade and is still rising.
Now compared with the peak in early 2011, the price of iron ore is down over 40 per cent, but is up 16 per cent from the dip in late 2012 year is down over 30 per cent from the level in early 2013. It is easy to make a nice headline picking a peak level and comparing it with the price now.
For me, the longer run trends are important and the price is still high.
To be sure, it would be a concern if iron ore prices fell to US$70 a tonne or less as this would hurt many of the high cost producers and the economy. But that seems unlikely that prices will fall this low on any sustainable basis as China is still growing at 7.5 per cent, the global economy is looking stronger by the week and as we keep hearing from the mining investment collapse, new capacity to produce more of the stuff is not being increased.
