Australia's big two iron ore miners, Rio Tinto and BHP Billiton, believe the commodity will continue to be a "wealth generation machine for Australia" and expect volatility to recede, despite the heavy price falls in recent days.

Iron ore may be headed for $US40 a tonne after crashing through $US45 on Wednesday night, dropping more than 10 per cent in a single day. But Rio and BHP say they are well prepared for the possible new normal in prices.

Rio Tinto iron ore boss Andrew Harding told The Australian Financial Reviewthat the iron ore price "is moving around its long-term average after coming off an unprecedented high that was never sustainable".

"We are seeing a pattern play out now that is entirely consistent with the history of all internationally traded commodities," he said.

OPTIMISM LONG-TERM

The miner has cut costs, and prepared its iron ore division "to manage these fluctuations over the long term". He maintains that the "long-term picture for iron ore remains sound", and the commodity will "continue to be a wealth generation machine for Australia".

Rio and BHP Billiton make solid margins at current prices, given their break-evens (the price at which they are not making or losing cash) are about $US31 to $US32 a tonne, with Rio still the lowest-cost exporter to China.

The third force in iron ore, Fortescue Metals Group, says its break-even is about $US39 a tonne.

Third-tier miner Atlas Iron's current break-even is about $US53 a tonne. David Flanagan, founder of the struggling junior, insists prices in the mid-$US40's are "absolutely not the new normal – volatility is".

But BHP Billiton iron ore boss Jimmy Wilson told the Financial Review on Thursday that "while volatility is likely to persist in the short term, as we are seeing across many commodities, it will recede as the cost curve continues to flatten".

"These supply-demand developments are consistent with the outlook that we have held and talked about for a number of years."

That view held within BHP saw the miner dump plans years ago to invest in major iron ore growth projects like the outer harbour development at Port Hedland "well ahead of our peers", and move its focus "to maximising the return from our installed infrastructure and resources", Mr Wilson said.

Stephen Pearce, chief financial officer of Fortescue, said on Thursday that "as a low- cost, high-volume iron ore producer, Fortescue is very well placed for the future".

He said Fortescue would be in "the same part of the cost curve as our largest competitors" this financial year, and the miner's quick cost-cutting was sustainable.

Many analysts are doubtful about the sustainability of Fortescue's cost cuts, and say its break-even will start to creep up again in about two years, when its sustaining capital of just $US2 a tonne, and strip ratios, start to increase.

SMALLER PLAYERS STRUGGLING

The three biggest Pilbara players aside, the rest of the industry's production appears to be underwater at current prices. And analysts are tipping more closures over the next year.

Morningstar's Mathew Hodge said, "This is not a market that can cost-cut to prosperity.

"On our numbers you need the vast majority of the high-cost producers outside of the bigger guys such as BHP, Rio, Vale, Fortescue, Anglo and Hancock, to close. Our view is the demand dynamic has changed – the market doesn't need their supply."

Argonaut analyst Matthew Keane said Atlas's operations remained at risk of closure despite the company's efforts to target a break-even price of $US50 a tonne by December.

"They are just cranking up again now but if they don't get the full raise away, the balance sheet will be under pressure, with little potential to generate cashflow below $US50 a tonne," he said.

Fellow Pilbara producer BC Iron and Mount Gibson could be positioning to shut or mothball mines, he said.

Analysts expect additional supply slated to enter the market, from Rio Tinto and Roy Hill this year and from Vale in 2016, to weigh on the iron ore price, and many forecast the price to drop below $US40 a tonne.

In a recent note to clients, RBC Capital Markets analysts led by Chris Drew said as much as 40 million tonnes of Australian iron ore supply was at risk of closure if prices persisted at low levels.

"Several producers, including Mount Gibson and BC Iron, have indicated that they would consider options if price weakness persisted. Arrium has already demonstrated willingness to adjust production, while Cliffs seems keen to leave Australia," RBC said.

"If prices fell below $US50 a tonne for a sustained period we would also expect to see Atlas reconsider its operation as well, potentially removing a further 14 million tonnes per annum of supply."