Dwindling Chinese property prices have sparked fears iron ore prices could be pushed even lower in the short term.

Prices for the lucrative commodity have hit a fresh low, falling for the seventh straight session of trade.

It has been a tough year for iron ore miners with prices for the steel-making ingredient falling 35 per cent since the start of the year.

The spot price has now dipped below $US89 a tonne.

Iron ore consultant Philip Kirchlechner said it was being driven by too much supply.

“The problem is there’s been a huge influx of supply into the market over the last twelve months and that’s really the key driver behind this slump in iron ore prices,” he said.

Australia’s three biggest iron ore miners – BHP Billiton, Rio Tinto and Fortescue Metals Group – have all undertaken massive expansions, which is flooding the market.

They believe a lowering of the price could start to force some high-cost Chinese miners out of the market.

Plummeting house prices hit ore price

Falling house prices in the Asian nation are also starting to weigh down the commodity.

Last July, prices rose in 62 of 70 key Chinese cities; this year, values went up in only two of them.

Macquarie Private Wealth’s Bevan Sturgess-Smith said that sort of data can drive iron ore prices.

The government in China is worried about the property bubble; a lot of people in China invest in property.

“Whenever you get news out of China like that, it does tend to drive markets down a little bit, so people get a little bit nervous,” he said.

An oversupply of housing and government moves to discourage investment in the market have been blamed for the slide.

“The government in China is worried about the property bubble; a lot of people in China invest in property,” Mr Kirchlechner said.

“The Chinese government wants to take the heat out of that bubble, which is a good thing, to put China on a more sustainable growth path.”

But he said the downturn was weighing down iron ore sentiment.

“It will have a psychological impact on iron ore traders who see the property market slumping. They immediately think it’s going to mean less demand and therefore less demand for iron ore,” he said.

“But it’s not necessarily going to be the case that less construction will happen, there is just a temporary deflating of the housing market.”

Prices have ‘more to fall’ before turnaround

While Mr Sturgess-Smith believes prices have a little further to fall, he is confident of a turnaround in both housing and iron ore.

“We’re pretty comfortable that those figures will start to move back up towards the end of the year,” he said.

“We do think it’s cyclical but also there will be some intervention from the regulatory authorities as well.”

Analysts believe iron ore prices will return to at least $US95 a tonne towards the end of the year.

Despite the predicted up-tick in prices, Mr Kirchlechner said price volatility would continue.

“Two years from now, Brazil will put … a big new mine into production. So in two years, you’ll see again a pretty lumpy increase in output that will cause another slump [in] prices,” he said.

“So, this volatility will continue as supply tries to catch up with demand and then overshoots again, but in the short term I think prices will be pretty stable, around the $90 mark.”

He said other structural changes in the iron ore market had also led to less stability.

“In the past it was just the mining companies selling to the steel makers,” he said.

“Now you have so many trading companies, you have banks, financial institutions, who take positions in iron ore, you have financial markets now having an impact on iron ore.

“It’s not just the physical trade, it’s the financial markets related to iron ore which exacerbate price fluctuations.”