Iron ore sagged to its lowest level since July, hammered by sliding steel prices in top consumer China where mills are either seeking deeper discounts on spot cargoes or staying away from the market in anticipation of further price declines.
Iron ore, China's top import commodity by volume, has fallen nearly 11 percent this year, potentially cutting profit margins of global miners Vale, Rio Tinto and BHP Billiton , which consider the raw material their biggest business.
The price of copper, another commodity of which China is the top consumer, has dropped by a smaller 3.6 percent this year.
In its drive to cut costs, BHP said it will indefinitely suspend production at its Yarrie mine in Western Australia, part of its smallest iron ore operation.
Iron ore for immediate delivery to China slid 2 percent to $119.90 a tonne on Monday, its lowest since July 2, according to data provider Steel Index.
Weaker steel prices, lending curbs, plentiful supply of iron ore in the spot market and huge stockpiles at home have combined to drag down prices, said an iron ore trader in China's eastern Shandong province who sees the price falling further to either $115 or $110.
"Before, when we offer cargoes at 800 yuan per tonne, buyers ask for a discount of 10-15 yuan. Now that's become 30-40 yuan," he said, adding his company has held onto 300,000 tonnes in inventory for two months now amid a scarcity of good offers from buyers.
"It's a tragedy for traders like us."
Vale sold a cargo of 64.22-percent grade Brazilian Carajas iron ore fines at $127 a tonne at a tender on Monday, down more bthan $4 from the sale of a similar grade last week, traders said.
Chinese steel prices fell for a fifth day running on Tuesday after hitting all-time lows in the previous session on fears banks are restricting credit to property-related sectors such as steel, cement and construction.
The most-active May rebar contract on the Shanghai Futures Exchange slipped 0.3 percent to 3,327 yuan ($550) a tonne by midday. On Monday, rebar fell to 3,308 yuan, the lowest for a most-traded contract since the Shanghai exchange introduced the steel product in March 2009.
Also exerting sustained pressure on steel prices in China is the excess capacity of its steel sector as the country's legion of producers compete in the world's top market, often at the expense of their profit margins.
Overcapacity in China's steel sector is so severe that it is "probably beyond our imagination", Li Xinchuang, executive vice secretary-general of the China Iron and Steel Association, told an industry conference in Beijing.
At the Dalian Commodity Exchange, iron ore for delivery in May dropped almost 1 percent to 820 yuan a tonne, also marking a fifth day of decline, after touching a contract low of 817 yuan in the previous session.