Overnight, iron ore fell to a fresh low of $US86.70 a tonne overnight, the price it reached in early September 2012. Should it fall below that price, it will hit its lowest since October 2009. The metal has fallen more than 35 per cent this year.

The fundamentals of the iron ore market are weak at the moment and China's housing sector still has further to fall before it recovers, ANZ head of commodities Mark Pervan said.

"It might be that the market is ok with that, but a downward trend doesn't allow for a recovery in price. Our view is that the housing market won't start recovering until the second quarter of next year, and that will be where it's bottoming," Mr Pervan said.

Australia's big miners such as BHP Billiton and Rio Tinto are flooding the iron ore market with high quality product. This not only affects the supply-demand ratio, but also widens the discount that other iron ore miners, with lower quality ore, have to take.

"These guys aren't taking their foot off the pedal," Mr Pervan said.

"The real issue for the Australian iron ore industry, particularly the big boys, is that it's the still the best deal in town for them. They're not prepared to give up market share in what is still their best performing asset."

Persistently strong supply from Australia will continue for the next two to three years, so any price recovery will not be substantial, Mr Pervan said.

It will drop to $US75 a tonne in the second half of next year as rising low-cost supplies from Australia and Brazil worsen a global glut and the slowdown in China's property market curbs demand growth, CLSA analyst Ian Roper said.

The price averaged about $US94 a tonne this quarter compared with $US121 in the first three months of 2014.

The commodity used to make steel will average $US80 a tonne in 2015, down from an earlier full-year estimate of $US85, and $US75 a tonne in 2016 and 2017, down from estimates of $US80 for both years, Mr Roper said. By quarter, prices were seen at $US90 in January-to-March next year, $US80 in the second quarter and $US75 for the final two three-month periods, according to the report.

New-home prices in China, which buys about 67 per cent of seaborne ore, fell in July in almost all cities that the government tracks, boosting concern that economic growth is faltering. While demand for iron ore was sluggish, supply is spectacular, Roper said, China's largest brokerage by market value.

"The oversupply situation is only going to worsen over the next few years," said Roper. The property-market slowdown in China "looks increasingly serious for steel demand next year," he said.

The forecasts from CLSA are in line with the view from Goldman Sachs, which predicts that the raw material will average $US80 a tonne next year. Morgan Stanley and Citigroup expect prices to average $US90 next year.

The near-term floor price for iron ore depends on whether Chinese iron ore supply is curtailed, Mr Pervan said.

"I don't think we're too far away from that. What it does require is some steel mill closures."

Mr Pervan said that vertically integrated steel mills were keeping their iron ore production online, which will continue to pressure the price until they slow.

"For the first time in over a decade, the need to eliminate iron ore supply, rather than incentivise it, is determining prices," said Roper.

About 200 million tonnes of higher-cost capacity may exit the market as prices drop toward $US80 a tonne in the first half of next year, he said.

Increased production in Australia and Brazil will help to add about 94 million tonnes of new supply in 2015 from 155 million tonnes this year, CLSA estimates. A further 75 million tonnes will be added in 2016 and 81 million tonnes in 2017.

That won't all be absorbed by China as steel consumption growth, the driver of demand for iron ore, slows. While the world's second-largest economy will import an additional 80 million tonnes of ore next year, that'll drop to 15 million tonnes in 2016 and 6 million tonnes in 2017, Roper said.

Declining prices will prompt the closure of higher-cost supplies in China and from 2016 onward, some seaborne producers, CLSA said. China's output would drop from about 340 million tonnes in 2013 to a sustainable level of 200 million tonnes, Roper said.

"From 2016, the story of the iron ore market will switch from being one of displacement of Chinese high-cost supply, to being one of displacing marginal seaborne supply," he said.

with Bloomberg