HOW much iron ore is too much?

It is one of those questions which will be answered only the hard way as price falls knock out marginal producers by making them deeply unprofitable, eventually bringing the market back into a balance between supply and demand.

It is also a vital question for Australia, given iron ore is our biggest export earner.

One of the best indicators of how far into that process we are should be answered this week as Rio Tinto chief executive Sam Walsh outlines the resource group’s half-yearly profit results on Thursday.

Mr Walsh is one of the most experienced iron ore experts around and will have been carefully watching recent price moves as the main steelmaking ingredient finds a floor somewhere between US$42 and US$60 a tonne.

That’s a far cry from the days in 2011 when iron ore zoomed above US$180 a tonne, but those boomtime prices as China scrambled to make more steel have stimulated the mother of all supply responses.

With Gina Rinehart’s Roy Hill mine set to open this year and previous expansions from Rio Tinto, BHP Billiton and Fortescue coming online, Australian iron ore exports are set to rise around 10 per cent in the next year.

At the same time, Chinese demand has been cooling quickly, delivering an unmistakeable price signal to all iron ore producers and triggering cost-cutting as producers try to remain profitable.

That includes Rio Tinto and BHP Billiton, even though they are near the bottom of the cost curve. But for some smaller producers, the cost-cutting has been a fight for survival.

So far the reaction from Rio Tinto and BHP is that they won’t be reducing supply as a reaction to their compressing margins, given they are still making solid profits on every tonne they export.

Mr Walsh is unlikely to resile from that position on Thursday but his views on the outlook for iron ore prices as Australian exports begin to ramp up again after port maintenance will be very interesting.

Other than Rio Tinto, there are several other companies reporting profit numbers, including listed investment company Argo today, Suncorp tomorrow, takeover target Skilled on Wednesday, engineering group Downer EDI on Thursday and airline Virgin Australia on Friday.

The Reserve Bank board meets tomorrow to discuss interest rates but is almost certain to leave the official rate at 2 per cent.