About 300 million metric tons of new and expanded supply will come on stream over the next few years, analysts including Carol Cowan said in an e-mailed report. Global steel-production growth in 2014 remains muted with China, the key driver of consumption, continuing to slow, Moody’s said.

Iron ore tumbled 40 percent this year after companies including Rio Tinto Group, BHP Billiton Ltd. and Vale SA raised low-cost output in Australia and Brazil, spurring a global glut. The market is in the midst of a transition without precedent in recent commodity history as supply surges and some higher-cost mines are displaced, according to Macquarie Group Ltd.

“Iron ore prices have collapsed,” Moody’s said in the Oct. 17 report. “With slowing global steel-production growth rates, iron ore prices remain vulnerable to the downside and we expect continued volatility.”

Ore with 62 percent content delivered to Qingdao rose 0.6 percent to $80.82 a ton on Oct. 17, according to data from Metal Bulletin Ltd. The price fell to $77.97 on Sept. 29, the lowest since September 2009.

“Downward rating actions for iron ore producers could result as Moody’s reassesses the impact of a protracted pricing weakness,” it said. The so-called price sensitivity for iron ore was revised to a range of $75 to $85 a ton through 2016, according to the report.

Lower Prices

While low-cost producers such as BHP, Rio and Vale have more tolerance to absorb lower prices in the near term than Cliffs Natural Resources Inc., Fortescue Metals Group Ltd. and Atlas Iron Ltd., the compression of earnings and cash flow is nonetheless value destructive, it said.

Stockpiles in China are contracting, which shows demand is outstripping supply and high-cost production is leaving the market, Fortescue Chief Executive Officer Nev Power told reporters on Oct 16. The world’s fourth-biggest exporter said shipments rose 66 percent in the three months to Sept. 30 as it expanded output from Western Australia mines.

“We shouldn’t panic when there’s a blip in iron ore prices,” Rio Chief Executive Officer Sam Walsh told reporters in Sydney on Oct. 15, dismissing suggestions that the company wouldn’t boost returns. In August, Rio raised its dividend and flagged further returns, saying it’s on its way to becoming a “cash machine” as it cuts costs and raises production.

Cliffs Natural

Cliffs Natural, the largest U.S. producer, expects to take a writedown of about $6 billion on its seaborne iron ore and coal assets after prices fell, the Cleveland-based company said Oct. 17. The shares lost 67 percent this year.

Australia and Brazil, the two largest suppliers, will raise their combined share of global seaborne supply from 73 percent last year to an estimated 90 percent by 2020 as high-cost mines are forced to close, Macquarie Group said in an Oct. 14 report.

The suggestion that high-cost producers, particularly in China, will leave the market and reduce supply may take longer than expected to actually happen, according to Moody’s. Many mines and steel companies in the country are state-owned, and this so-called captive iron ore supply could result in sustained operations despite losses, it said in the report.

Global seaborne output will exceed demand by 26 million tons this year and 41 million tons in 2015, UBS AG said in an Oct. 15 report that cut price forecasts for 2015 and 2016 while sticking with a call for an end-of-year rally this quarter.

Shares in Rio lost 13 percent in Sydney this year, while BHP fell 11 percent and Fortescue retreated 40 percent. Atlas Iron gained 2 percent to 37.75 Australian cents today, paring the Perth-based company’s drop in 2014 to 67 percent.