Rio Tinto and BHP Billiton have a "strong incentive" to flood the market with cheap iron ore as their oligopoly is under threat, according to a detailed research paper from UBS, which also downgraded its long-term price forecasts for the bulk commodity.

The UBS paper, by analyst Daniel Morgan, predicts that the major producers will try to dissuade new entrants by depressing prices through oversupply.

"The majors therefore have strong incentive to bring new tonnes to market as quickly as possible to preserve market structure," the paper said.

On Tuesday, West Australian Premier Colin Barnett accused the two mining giants BHP Billiton and Rio Tinto of "acting seemingly in a concert way" by flooding the depressed iron ore market.

"Our work in our updated incentive price analysis suggests that projects outside the majors need prices of $US90-$US100 per tonne to incentivise entry," Mr Morgan said. "But once built, these projects require about $US60-$US90 per tonne to break even."

However, UBS predicted that prices would stay too low for new projects to come on stream.

The paper, Iron ore: Game Changer, downgraded UBS's forecasts for iron ore to between $US80 and $US85 between 2015 and 2019. They had been about $US100.

The long-term price in 2014 dollars is just $US75.

The iron ore price as measured at Qingdao port in China fell 1.3 per cent on Wednesday night to $US82.55 a tonne, further retreating after a rally on Friday and Monday briefly propped up the price, which has been under pressure over the past months.

Mr Morgan noted that iron ore had delivered better returns than most other mined commodities because of an oligopoly supply structure. For years, this had revolved around two rail and port systems – Rio Tinto's Hamersley and Robe River railway, and BHP's Goldsworthy and Mount Newman railways.

However, new competition had arrived, with Fortescue's Pilbara railway opening in 2008 and a new line for Gina Rinehart's Roy Hill mine due to open next year.

"A fifth is now also possible, via Baosteel's takeover of Aquila, with its plans to develop a port at Anketell Point," said the UBS paper. "This system could conceptually eventually be 200-300 million tonnes per year capacity, and the first to be open access."

The price of iron ore has crashed from about $US120 a tonne in mid-March to just over $US80, leaving the West Australian government, which relies heavily on mining royalties, with a $2 billion black hole in its budget.

Moderating steel consumption growth in China as the economy matures would weigh on iron ore demand, despite the surge in supply, the paper said.

At prices between $US80 and $US85, about "a quarter of current iron ore production is loss-making", the report said. "These producers will fight to cut costs and stay in the trade, but we believe a significant proportion will be unable to do so."

The major producers would benefit in the new environment, the paper said.

"In our forecast low-demand growth environment, there is little need for large-scale new tonnes in the market.

"Here we believe only the majors, with their cost and ore quality comparative advantage, have an incentive to expand and take market share from high-cost peers."