Former Rio Tinto chief Tom Albanese says weak iron ore prices are here to stay for longer than expected and "volatility is the new normal", as iron ore sank below $US70 a tonne overnight Tuesday for the first time in five years.

In a dramatic year for the industry, iron ore has crashed almost 50 per cent since January, catching even the most bearish commentators off guard.

Mr Albanese, speaking to Fairfax Media from India, said prices would remain under pressure while supply outstripped demand, and a recovery hinged on how quickly high-cost Chinese production exited the market.

"As long as there is a large amount of new supply you are going to have a much softer pricing world than people would have anticipated, for at least a couple of years," he said.

He said the ditching of the benchmark pricing system in 2010 had transformed the market.

"The new normal is volatility – for the past five years we've had to accept a high level of it, post the collapse of the benchmark pricing system.

"While it's fun on the way up, it's painful on the way down."

He offered some support for the controversial expansion strategies being run by the iron ore majors – Rio, BHP, Fortescue Metals Group and Brazil's Vale.

"It is in a company's individual best interests to put more supply in when costs are low – although that may create collectively an oversupplied situation."

The price falls this year have differed from the collapse in 2008, which were demand-driven, and then reversed as government stimulus measures took hold, led by China and the United States.

"Now it's a price drop that is supply-driven - that's harder to rectify."

Mr Albanese said it was difficult for smaller players to maintain confidence amid "just so much negative price momentum".

He said predicting the point of supply-demand balance was a work in progress.

"I think we are still sorting out where the supply-demand equilibrium is. I don't think it's quite as precise as economists would like to think."

Rio Tinto and BHP Billiton had incorporated big price falls into their modelling, but even they have been caught off guard by the extent of the fall.

BHP Billiton head of marketing Mike Henry told Fairfax Media in October that it was unlikely iron ore would eclipse $US100 a tonne again.

ANZ head of commodities Mark Pervan also said iron ore is unlikely to breach that $US100 level. Citigroup this month moved to slash its forecasts for the commodity for the next two years to $US65 a tonne, from an average $US80.