Iron ore prices are being tipped to drop below $US40 a tonne, with no signs of a pickup in demand for the steel-making commodity from China.
The steel-making commodity fell to a fresh 10-year low of $US41.13 a tonne overnight amid worries about more signs of weakness in China's housing and construction sector.
There appears to be nothing standing in the way of further falls in the price of Australia's largest export as loss-making Chinese steel mills cut production.
Some analysts predict the commodity will soon break through the $US40 mark and sink towards $US30 a tonne.
ANZ commodity strategist Daniel Hynes said weaker steel demand in China had pushed iron ore prices lower amid reports of steel-mill capacity being shutdown and the imminent first shipments from Gina Rinehart's Roy Hill project.
"Downside risks are still strong and the possibility of prices falling through the $US40 a tonne mark are fairly high at the moment," Mr Hynes said.
"We don't see anything over the next month which could turn things around."
ANZ predicts prices, which were over $US70 in early 2015, will drop to $US40 in March 2016, but it and other banks are reviewing their forecasts.
Mr Hynes said iron ore company margins had been able to cope with falling prices because of continued cost cutting and the weaker Australian dollar.
Mine Life analyst Gavin Wendt said there was nothing stopping prices falling to $US30 a tonne, hurting large and small iron ore miners in the process.
"We're past peak iron ore demand in China, no matter what BHP and Rio say," he said.
"All evidence is the price is going to go to $US30 a tonne because the demand outlook is weak."
National Australia Bank economist David DeGaris said economic forecasts in the federal government's May budget for an annual average iron ore spot price of $US48 would most likely be reduced to around $US41 in the mid-year economic review, due out on December 15.
"It might be a little bit south of that just to be on the conservative side," Mr DeGaris told AAP.
"Certainly a lower iron ore forecast is negative for tax receipts but the Aussie dollar had a technical assumption of 77 cents in the Budget and that's since come off so that's providing some offset."
A $US10 fall in the iron ore price equates to around $2.5 billion a year in lost revenue for the federal government.
Meanwhile, investment bank UBS says it cannot find an improvement in Chinese infrastructure construction.
"All Chinese steel mills are effectively losing money," Mr Shaw said.
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