Axiom analysts Gordon Johnson II and James Bardowski have been bearish on Rio Tinto(RIO) for some time, but today lowered their target price on the stock by $5, to $28, which would represent a 40% decline from the stock’s Wednesday level.

Although the ADSs reached a new 52-week low last week, Johnson and Bardowski believe that the firm will feel more pain ahead, given that iron ore accounts for some 83% of Rio’s aggregated EBIDTA and their projections for iron ore average selling prices of $59 and $47 in 2015 and 2016, respectively. They note that while the “painful” glut of iron ore is already playing out in the commodities market, it will take some time to work through this oversupply.

Nor should investors expect China to save the day—just the opposite. They write that the increase in supply comes as China’s appetite for steel is cooling, and that nation’s recent rate cut will make Chinese banks even less likely to lend, given its further pressure on margins.

And what about iron ore companies’ sense self-preservation—won’t they cut supplies amid falling prices? Don’t count on it, write Johnson and Bardowski, for four main reasons:

(1.) Greed is good: as we illustrate in Figure 11 below, the output of 8 leading iron ore miners (i.e., RIO, BHP, AGO, FMG, VALE, Kumba, CLF – collectively comprising 33% of total market share in 2013), rose from 172.4Mt in C2Q08 to 187.1Mt in C1Q11 (or +8.5%, in absolute terms), trailing the increase in iron ore prices; as the commodity’s spot price surged, largely fueled by massive stimuli on the heels of the Great Recession (i.e., iron ore rose to an avg. ~$176/t from C1Q11-C3Q11), iron ore miners began ramping production en masse. Thus, accounting for the lag time between investing in capacity expansions & actual increases in production, we believe greed led to an absolute increase in global iron ore production of +53.4% between C1Q11 & C3Q14, while iron ore prices fell -48.9% over the same period.(2.) Production is sticky: as such, we find few incentives for miners to curtail production when prices fall. In other words, as our checks suggest, it costs too much to simply idle a mine (i.e., as revs/utilization diminish, avg. costs skyrocket). Resultantly, we believe miners will continue to operate mines at negative margins; we find testimony in this thesis from surging exports out of one of the busiest iron ore ports in the world (i.e., iron ore from Australia’s Port Hedland recorded record high exports in 6-out-of-8 of the previous months – again, see Figure 5 below). (3.)Low costs: as our checks indicate cash costs remain below current spot prices for the largest producers, we believe iron ore miners have further room for margin contraction – further removing the incentive to curtail production. (4.) Guidance: while it is no secret that spot prices have taken a beating this year, based on company guidance (i.e., RIO & BHP expect to produce a record ~230Mt & 245Mt of iron ore, respectively, by year-end 2014), we posit production is poised to continue climbing. Thus, based on these four dynamics, we find little salvation in the hope that global iron ore production will follow spot prices lower and, instead, assert that further increases in output will only work to add additional downward pressure on prices.�