SINGAPORE/LONDON (Reuters) - Iron ore prices fell to their lowest levels since 2009 on Thursday, dragging down shares in miners including top producers of the steelmaking ingredient, Rio Tinto (RIO.L) and BHP Billiton (BLT.L), as a slowdown in top consumer China threatened to further sap demand.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI slid nearly 2 percent to $88.70 per tonne on Thursday, according to data provider Steel Index, the lowest since October 2009, although recorded spot prices fell as low as $59 in early 2009. Iron ore pricing moved from a decades old once-a-year benchmark to a system based on daily assessments in 2010.
The iron ore price has dropped by a third, or almost $50 per tonne, since July, as Chinese steel producers shun cargoes and the appetite of the world's largest consumer cools.
Prices could fall up to 30 percent more, with no sign consumption will rebound anytime soon, analysts and traders said.
"It's possible for prices to fall to as low as $65 to $70 in the spot market, before a recovery back to the $80 to $90 range," said Fairfax I.S. analyst John Meyer, adding that the price slide could continue for the next one to two months.
"It's a little early to look for significant restocking in China. I think they're still shaking the tree."
Iron ore is a leading economic indicator as it highlights demand in key industrial sectors such as construction and carmaking.
Many traders are currently trying to liquidate their iron ore cargoes with little success, a further sign that a rebound is not on the cards in the short term.
"Not only is a recovery in the near term unlikely, there is also no sign that the fall will stop," a UK-based iron ore trader said.
"Looking at the cost curve these prices make no sense but there are no signs at all of an improvement in demand. The further traders wait the more they lose and waiting for a recovery is a big risk to take."
A second trader said he was getting "no interest whatsoever" for an iron ore cargo he was offering.
A movement of the iron ore swaps forward curve on Thursday also indicated the market has lost faith in a price recovery in the near term.
Swaps tied to iron ore deliveries for the firt quarter next year traded above swaps for the last quarter this year, showing players think a rebound is unlikely until 2013.
Iron ore has been the biggest revenue earner for top miners Vale (VALE5.SA), Rio Tinto (RIO.L) and BHP Billiton (BHP.AX) (BLT.L) and producers have for years banked on China's industrialisation efforts to sustain its appetite for the material.
But the slowdown in the Chinese economy put the brakes on a rally that lifted spot rates to near $200 last year, more than triple the level since 2008.
Prices have been falling rapidly since early July.
Shares of Rio Tinto in Australia fell 3.8 percent to close at A$48.63, their lowest since July 2009, while rival BHP lost 2.4 percent, the steepest single-day drop in a month. In London, BHP shares were down 2.9 percent in afternoon business, while Rio was trading close to 2012 lows, down 2 percent.
Mid-tier miners were under even more pressure as the margin between costs and prices narrows. Shares in Ukrainian producer Ferrexpo (FXPO.L) fell as much as 10 percent, as analysts quoted fears of a fall in the premiums for pellets and high freight costs.
Analysts at Liberum said Australian producer Fortescue Metals Group (FMG.AX), with cash costs around $50 per tonne, in reality had much higher costs once royalties, corporate overheads and freight are included. All in, costs would be $79 per tonne, not far from realised prices, the analysts said.
Shares in emerging west African producers African Minerals AMIq.L and London Mining LOND.L were also hit by the margin fears, down 4.8 percent and 5.4 percent respectively, underperforming a 2.4 percent drop in the sector .FTNMX1770.
"The speed in the fall of the iron ore price is alarming. I don't think many people expected it to be sub $100 and to see it go below $90 is eye-opening to say the least," analyst Asa Bridle at Seymour Pierce said.
"For a long time there was uncertainty over whether a lot of the planned production would come on, and perhaps that is still the case, but for those that have made it to production, the timing is cruel to say the least."
The iron ore market will remain under pressure until the steel sector recovers and this will not be a quick process, analysts said.
"With sluggish manufacturing activity in Europe and a construction market that's struggling to pick up in China, demand for steel has dropped sharply with no quick fix in sight," said Metal Bulletin research steel analyst Kashaan Kamal.
Chinese steelmakers said the sector, nourished by a decade of breakneck growth, needs to brace itself for weak demand and razor-thin margins over the next 3-5 years that will force inefficient mills to shut.
The most active rebar contract for January delivery on the Shanghai Futures Exchange slipped 0.2 percent to close at 3,437 yuan a tonne, stretching its losing streak to a 14th day running.
Rebar, or reinforcing steel bar which is used in construction, hit a record low of 3,327 yuan on Wednesday. Down almost 9 percent so far in August, it is on track to extend its monthly loss to a fifth straight month.
Fading steel demand in China will see producers incurring bigger losses this month following a loss of 1.9 billion yuan ($299 million) in July.
Baoshan Iron and Steel Co Ltd (600019.SS), China's biggest listed steelmaker, said global demand for iron ore could drop in the second half of 2012 compared with the first six months, while 50 million tonnes of additional supply will come on stream, weighing further on prices .
Iron ore lost almost a quarter of its value this month as most Chinese buyers opted to keep their iron ore inventories low and bought smaller lots from port stockpiles instead of ordering fresh cargoes.
"We're lucky we don't have so much cargo. Many traders are struggling to unload their material into the market," said an iron ore trader in Shanghai.
Price offers for cargoes from Australia, Brazil and India fell by another $2-$4 a tonne on Thursday, traders said.
($1 = 6.3517 Chinese yuan)
Additional reporting by Clara Ferreira Marques; editing by Alison Birrane and Keiron Henderson