Commodity crunch: Decade-low iron ore hits miners

Mining stocks suffered from relentless selling on Tuesday, with Anglo American tumbling over 11 percent to a fresh record low after the group suspended its dividend.

FTSE-listed peer Glencore also tanked close to 10 percent, with Rio Tinto and BHP Billiton both down in excess of 6 percent, falling to the bottom of benchmarks.

Olivier Lantzendörffer | Vetta | Getty Images

Anglo American's tumble came after the miner announced restructuring plans on Tuesday, including the consolidation of business units from six to three, the suspension of dividends for the second half of this year and the selling of more assets.

"The fact that they have suspended the dividend is a bit of a shock to the market. I don't think anyone expected to suspend the dividend, maybe just to reduce it. Now this looks like a radical restructuring, more like a survival plan than maybe just trimming and cutting costs," senior mining analyst at SP Angel, Carole Ferguson told CNBC.

At the same time, spot iron ore fell to a fresh decade low, as the global glut of supply persisted and future prices of the commodity showed further weakness.

The steel making component hit $38.80 according to The Steel Index (TSI), its lowest level since TSI started collected data in 2008.

Under the earlier system that predates the spot-based system, it was the lowest since 2005, based on Goldman Sachs data.

Mining suffers badly
Mining suffers badly

"When we get to this kind of level of $39.50, it is difficult for everybody, whether you are a steel maker or iron ore producer. These kinds of levels have not been seen before, this is the lowest level seen since 2008," Annalisa Jeffries, associate editorial director of metals at Platts told CNBC.

"I think, for now it is the winter, which makes it difficult in terms of production and moving material around, so there is going to be a general slowdown. We all know things are slowing in China in general, but going into 2016 unfortunately the outlook is quite bearish," she added.

Oil prices also resumed their slide on Tuesday, with U.S. crude slipping below $37 per barrel and internationally trade Brent dipping below $40 for the first time since 2009.

Anglo American to consolidate, sell more assets, suspend dividends

While mining stocks bore the brunt of declines in equity markets Tuesday, analysts suggested that while the sector was in real trouble, the larger producers were still able to make decent profit margins even at the current record low prices.

"To some extent. Rio Tinto and BHP Billiton are at the low end of that cost range, with Fortescue Metals group (FMG) and Vale at the high end. The latter two will therefore be under greater pressure to respond in the near term. We note that with iron ore at $39 a ton, BHP and Rio will still be making margins around 40 percent, margins that most companies in most industries would be happy to take," Investec analysts led by Hunter Hillcoat said.

Jeffries agreed that Australian miner FMG is most at risk as a result of high production costs, as Rio Tinto and BHP are benefitting from extraction costs of around $18 per ton.