Iron ore has slumped below $US80 per tonne for the first time in more than five years, as the Chinese government dampens hopes of aggressively policy stimulus to fuel growth.
The benchmark iron ore price for immediate delivery at the port of Tianjin in China slid 2.3 per cent to $US79.80 a tonne on Monday, the lowest price since September 17, 2009, following a 1.6 per cent fall to $US81.70 on Friday.
The sharp falls came after a short-lived rally last week that led the commodity's price higher to more the $US85 a tonne.
China will not be making any major policy adjustments due to a change in one economic indicator, finance minister Lou Jiwei said on Sunday.
The Chinese government is attempting some monetary stimulus; last week it cut the rate for short-term borrowing costs for banks by 20 basis points to 3.5 per cent.
However, the government is unlikely to enact any major fiscal policy, instead pushing forward with structural reform, which means it will be hard for iron ore to pick up lost ground, Deltec chief investment officer Atul Lele said.
"Unless we saw significant policy stimulus, aimed at infrastructure spending, which the finance minister yesterday said that there's imbalances that get created by that, it's difficult to see a strong rebound in the next few months, if at all," Mr Lele said.
On Thursday last week, the average price of new homes in China fell for the fourth-straight month. Of the 70 cities measures by the National Bureau of Statistics, prices fell in 68, were unchanged in one and increased in one.
China's residential property sector is one of the country's largest consumers of steel, around 24 per cent, which is made from iron ore.
China's steel industry, meanwhile, is close to peak production.
China Iron and Steel Association deputy secretary general Li Xinchuang on Monday said steel production had risen above 800 million tonnes in 2014 but that growth rates are slowing.
"The China market is not as good as before," Mr Xinchuang said. "It [iron ore] will be roughly around $US80 per tonne for a long time because the volumes [of imports] increase very fast," he said.
Vale director of strategic planning Stephen Potter told an audience in Melbourne on Tuesday morning that mining companies had to try and pick which stage of the development cycle the world was in.
"Everyone is nervous about the iron ore price at the moment; are we shifting from heavy industrial (phase) to a consumer-led industrial (phase) in some classical economics professor's views on development, and does that mean China is going to be using less iron ore? Well these are always the challenges for a mining company to decide which commodities it needs to invest in," he told the IMARC conference.
Based in Brazil, Vale is the world's biggest exporter of iron ore.
Vale has traditionally sold iron ore to China under a disadvantage because it is further away from China compared to its Australian rivals.
But the Brazillian giant has recently struck a deal with a Chinese shipping company to allow extra large ships to carry its iron ore into Chinese ports, under a plan that should cut unit costs through economies of scale and the use of modern, cleaner, more efficient technology.
Mr Potter said the new ships, known as Valemax, would cut Vale's production costs and were 35 per cent less carbon intensive than the cape-sized vessels traditionally used in the bulk commodity industry
"Our new generation of large ships are very important, it is probably our biggest opportunity to reduce carbon dioxide emissions in our value chain," he said.
"We do it for money as well, they are much more competitive. Brazil faces a desperate disadvantage compared to Australia being on the other sod of the world from China."
Mr Potter said Vale was hoping to further improve the fleet by changing the fuel mix.
"We hope to take it further, we are hoping to convert our vessels to LNG," he said.
Recent data has disappointed markets and many analysts have lowered their growth forecast for the Chinese economy.
