Citi analysts yesterday slashed their iron ore price forecast for 2015 from $US65 a tonne to just $US58, signalling more pain on the horizon for Australian iron ore miners battling for profitability.

Citi’s bleak diagnosis came as the benchmark iron ore price continued to fall, dropping almost 1 per cent to $US68.50. After starting 2015 with a rally, iron ore is now within a whisker of the five-and-a-half-year low of $US65.70 posted before Christmas.

The shakiness took its toll on iron ore stocks, with Andrew Forrest’s Fortescue Metals falling to its lowest closing price since May 2009 when it shed more than 8 per cent to $2.345.

Australia’s biggest iron ore miners, BHP Billiton and Rio Tinto, fell 2.9 per cent and 3.6 per cent respectively while smaller miners were also hit hard. BC Iron was down 6.6 per cent and Arrium was down 5.6 per cent.

The latest fall in iron ore prices came as data showed that iron ore imports into China had hit an all-time high in December, suggesting that falling prices had boosted demand for overseas supplies. In addition, iron ore stockpiles at Chinese ports fell for a seventh straight week to their lowest levels since February.

Citi commodities strategist Ivan Szpakowski told The Australian that the lower oil price, along with the weakening Australian dollar, was helping Australian iron ore miners squeeze out Chinese iron ore producers by reducing fuel and freight costs.

“The major exporters including Australia have benefited vis a vis the Chinese domestic producers, who have not been able to take advantage of, for example, the [currency] movements and they also have not been able to benefit from the freight changes,” Mr Szpakowski said.

“The geographic advantage that Chinese producers had enjoyed is now eroding.”

While falling oil prices were expected to reduce costs for Australian producers by about $6 a tonne, the cut to Citi’s price forecast suggests those savings will pass through to consumers.

Speaking to The Australian from Beijing, CLSA head of resources research Andrew Driscoll said he expected to see more Chinese iron ore miners lose market share to Australian producers over the rest of the year.

He said the latest import data out of China was a positive surprise for the iron ore sector.

“I think there’s increased expectation of more stimulus in China, as we’re seen by the acceleration of infrastructure project approvals, and I think there are some encouraging signs in terms of improving property sales,” Mr Driscoll said.

“From a fundamental perspective there are some key signs of encouragement here, but that’s taking a back seat to action in oil prices and investor sentiment at the moment.”