Iron ore has broken through a five-year low on Wednesday as worries about China's property sector and a flood of global supply weigh heavily on the steel making ingredient.

Overnight the benchmark price for iron ore for immediate delivery to the port of Tianjin in China crashed through a five-year low after threatening for more than a week, hitting $US85.70 per tonne.

Analysts believe the iron ore price could fall even further, with Goldman Sachs forecasting an average price of $US80 per tonne next year, while CLSA have warned it will hit $US75 per tonne.

There is anecdotal evidence that China has cut domestic iron ore production by about 100 million tonnes, which may help the iron ore price in the near-term, UBS commodity analyst Daniel Morgan said.

"There is a significant proportion of the iron ore industry that is now break-even to loss-making; some of it in China, some of it elsewhere," Mr Morgan said.

"There is some rebalancing going on for people to make way for the Australian low cost tonnes."

Even if the iron ore price were to fall below $US80 per tonne, BHP Billiton and Rio Tinto would still be making a lot of money with relatively low break-even prices of $US51 per tonne and $US42 per tonne respectively in the second quarter, according to UBS research.

Concerns about China's property market are bubbling with the Chinese government's plans to transition the economy away from fixed-asset investment to consumption proving tricky.

The price of new homes across nearly all cities measured by the government fell in July, marking the third straight month of declines.

Steel prices in China have slumped to 10-year lows amid a faltering property sector, one of the biggest drivers of growth, accounting for 15 per cent of gross domestic product last year.

"While it's not getting those leaps of new supply like we had in Q2 this year, there is still incremental supply coming into the market. It just means the system is full," Goldman Sachs analyst Craig Sainsbury said.

"You've got good port inventory, there's no real need for anyone to be re-stocking at the moment and they'll just wait to see where prices moves to."

The price of iron ore hit $US89 per tonne in June but then recovered, however, unlike two and a half months ago, the Chinese government is not expected to introduce stimulus measures. However, there are those that believe the government will in order to meet its growth targets.

There is also an abundance of the steel-making ingredient in the market. Global miners, such as BHP Billiton, Rio Tinto and Vale have upped their output significant over the last 18 months, creating a glut of supply.

Not only is the amount of iron ore in the market pushing the price down, it is also hurting mid-cap miners who don't have the same quality iron ore that the big miners do. The means that smaller miners are not getting the benchmark price for their iron ore.

Buyers in China have the choice of a high quality versus a low quality product, forcing mid-cap miners to offer grade discounts.

In the June quarter, based on actual reported grade discount and an exchange rate of US93¢, Australia miners Grange Resources and Gindalbie Metals had break-even prices of $US87 a tonne and $US98 a tonne respectively, according to UBS estimates.

The grade discount widened significantly in the second quarter, as huge supplies of higher quality iron ore hit the market. The grade discount has narrowed slightly, but it could take up to two years to come back to a normal level of around 8 per cent to 10 per cent, Mr Sainsbury said.

"The single biggest thing that's changed in the iron ore market over the last seven or eight months is that the market has switched from buyers having no choice to buyers having choice," Mr Sainsbury said.