SMH.com reported that iron ore exports totaled almost USD 31 billion in the first seven months of the current June financial year, and account for about a quarter of the nation's total merchandise exports.

Exports of food and live animals account for about 10% of the total and manufactured goods for about 5%.

According to the report, if the iron ore price collapses, it won't just hurt Rio Tinto, BHP Billiton, Fortescue and the smaller iron ore miners. The entire economy will suffer as projects are cut back and tax and royalty income dives and while politicians in Canberra focus on media reform and leadership rumblings, the signals from this crucial commodity are flashing amber.

A price recovery from a flash crash that pushed the spot iron ore price down to USD 86.70 last September peaked at USD 158.90 a tonne on February 20th. Since then it has fallen by 15% to USD 134.40 a tonne. The fall comes as investors complete a switch in the way they look at the iron ore market.

In the boom, everything revolved around the strength of demand in China. Now, the focus is on a coming iron ore glut: new research by Goldman Sachs has upgraded both its potential size, and its estimated date of arrival.

Goldman's view is shaped around a belief that high cost Chinese iron ore production will not disappear as iron ore production expands in Australia and elsewhere.

The investment bank predicts that total sea-borne iron ore exports will surge from 1.15 billion tonnes this year to 1.5 billion tonnes by 2015, with Australia's export capacity rising from 560 million tonnes to 780 million tonnes. It sees Chinese iron ore production also increasing by between 3% and 5% a year over the same period, even though it is much higher cost.

This is contrary to the conventional theory that lower cost production from outside China including the Pilbara will replace higher cost Chinese production as it comes on stream.

Fortescue said that miners including price dips of the kind experienced in September last year will inevitably be reversed as marginal Chinese iron producers shut down and demand from Chinese steel mills spills over to Rio, BHP and the overseas miners that ship ore to China.