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AN expected iron ore price floor that miners have long been flagging could be a long way off, with prices of the steelmaking ingredient continuing to slump amid talk that China is subsidising high cost iron ore production.

 

 The notion of a price floor at about USD 120 a tonne, where high-cost Chinese production should have become unprofitable, has previously been pushed by Rio chief Tom Albanese and Fortescue chief Nev Power and others.

 

 In a note to clients written from a China research trip, ANZ commodities strategy chief Mark Pervan said a major problem for iron ore markets was that steel mills were not cutting production, despite falling steel prices, because of political and social drivers. ANZ believes the same thing is happening with iron ore production, with about 50 per cent of Chinese iron ore supply under water, but continuing to produce. He said that "We are unlikely to see the market bounce back until mine supply starts to wind down in the coming months.”

 

 Macquarie analysts said that while big steel mills were cutting output, smaller mills that were yet to cut production could run down inventories after they finally started to do so, putting further pressure on prices.