It comes as the iron ore spot price for 62% fines hit a new five-low of $US82.20 per tonne overnight.
 
The extent of the recent falls has surprised many analysts, with most now not expecting a rise back over $100/t this year.
 
“We now expect iron-ore prices to remain below $100/t for the foreseeable future with only supply shocks or aggressive raw material inventory re-stocking in China likely to drive the occasional spike back into three figures,” Macquarie said.
 
Macquarie dropped its 2015 iron ore price forecast by 16% to $92/t and its 2016 forecast by 18% to $90/t, which is also its long-term price.
 
“Stronger supply from the majors is the key driver behind the reductions in our price forecasts,” Macquarie said.
 
RBC Capital Markets lowered its 2015 forecast by $5 to $100/t, with a 2016-17 forecast of $95/t.
 
Its forecast for the current half is $97/t, down from $110/t, with expected restocking in the December quarter to provide some price support.
 
Citi Research was already bearish on iron ore with forecast prices of $90/t in 2015 and $80/t in 2016.
 
Macquarie’s price cuts translated to 50-100% drops in earnings for mid-cap producers and price target reductions of 20-35%.
 
Analyst Hayden Bairstow downgraded Grange Resources to underperform from outperform and BC Iron, Sundance Resources and Iron Ore Holdings from outperform to neutral.
 
Macquarie ceased coverage on Western Desert Resources this week following its collapse.
 
RBC’s Chris Drew downgraded Atlas from outperform to sector perform.
 
Atlas’ breakeven price is estimated to be $86/t and at an $80/t spot price, the company’s cash balance would be depleted by the end of the 2016 financial year.
 
Citi upgraded BC to neutral from sell given recent weakness in its share price, but is not expecting the falls in the iron ore price to impact its proposed takeover of IOH.
 
FMG is Citi’s preferred pick among iron ore producers.
 
“Among iron ore stocks only FMG generates cash at this price, and then only just, highlighting the pressure on sector,” it said.
 
RBC likes FMG, BC Iron and Rio Tinto in the iron ore space, while Mount Gibson Iron is Macquarie’s preferred stock due to its ability to weather an extended period of low prices as a result of its high cash balance.
 
Macquarie is expecting project cancellations, with Mount Gibson’s Shine, Flinders Mines’ Pilbara project and Atlas’ McPhee Creek and Corunna Downs the most under threat.
 
“Unfunded development projects look to be a tough ask in the current environment,” it said.
 
Iron ore producers were mostly lower this morning, with Grange and Mount Gibson down by more than 3%.