"It's not just resources versus the rest of the economy, it's iron ore versus the rest of resources versus the rest of the economy," said then Rio Tinto boss Tom Albanese, while describing the "three speed economy" he saw in Australia in May 2012. Illustration: Simon Bosch. But China's seemingly endless appetite for iron ore has been finally been shown to have limits, and the iron ore price has been driven lower by the ever-increasing volumes of iron ore leaving Australia and Brazil. Only now, as the price for Australia's top export commodity slumps at a five-year low, does there appear to be a consensus that iron ore, and mining generally, was helping to prop up government revenues and sections of the economy far away from the rocky gorges of the Pilbara. The recent corporate reporting season was littered with companies that named weakness in the mining sector as a factor in their own underperformance.

The trend went far beyond the traditional mining services crowd and was seen in airlines, media publishers and even clothing manufacturers who have noticed demand for their workwear products to be lower than in the past. No longer a debating point, the lived experience in Australia suggests life is harder beyond the peak of the iron ore boom. Not even the boldest iron ore bull would deny the recent slump in the iron ore price slump is serious. In a consistent slide since December 4, 2013, the benchmark iron ore price has fallen 41 per cent to reach the point where several of Australia's junior exporters are barely break-even propositions. Two microcaps trying to export from the gulf region of the Northern Territory, an off-broadway location in the world of iron ore, have already gone bust, while others like Gindalbie appear to be approaching something like a death spiral.

A huge increase in iron ore supply from the major exporters – Rio Tinto, BHP Billiton, Brazil's Vale and Fortescue Metals Group - has correctly been named as a major factor driving prices lower, but ANZ commodity analyst Mark Pervan said weakness in the Chinese real estate and steel sectors had also conspired to create a "perfect storm" of factors in 2014. At this week's prices below $US83 per tonne, Mr Pervan said iron ore had now fallen too far. "Markets never get it right straight away, they always overshoot on the up side and the down side, and I think we are seeing a classic example here of overshooting on the down side," he told a Bloomberg event in Melbourne this week. Citi's China-based commodities analyst Ivan Szpakowski said the forces behind the price falls in autumn were different to the forces pushing down the price in recent weeks. "[The second quarter] was very much supply-driven, but this is not," he said, noting that iron ore deliveries to China have been lower in the past two months than they were in the June quarter.

"What you saw instead was very weak end-use demand and that came both from the fundamental weakness in Chinese real estate and also from seasonal weakness because August tends to be one of the weakest times of the year for steel demand." Mr Szpakowski said steel mills had been running down their stockpiles rather than purchasing iron ore, and with the price sliding by the day, he said mills and traders knew they could wait and buy later at cheaper prices. "You had a few of these factors within China really driving the move I think," he said. From an Australian point of view, one of the starkest aspects of this year's price slide has been the pressure put on companies that export lower grades of iron ore. The sudden appreciation in value for lower grade iron ores, dismissed as worthless for decades, was one of the defining features of the early years of the mining boom.

Entrepreneurs like Fortescue's Andrew Forrest and Atlas Iron's David Flanagan were quick to seize on the emerging trend, and they created fortunes by snapping up territory that had largely been ignored by BHP and Rio because it was not considered to be good enough for the traditional export business. While Rio and BHP continued shipping ores with 62 per cent and even 64 per cent iron, the new entrants made billions shipping ores with iron grades closer to 57 per cent. But this year, with huge amounts of the top quality stuff coming into the market (and China making more of an effort to clean up the efficiency of its steel industry), the walls started to close in on those selling lower grade ores. The discounts of about 7 per cent that they had always accepted for their product began to widen to as much as 20 per cent, sending profits lower and forcing those companies to focus on finding better quality product to export. The dynamic has reportedly eased in recent months, but none the less, China's waning appetite for our lower quality iron ore is a significant moment in the fading of the iron ore boom.

In March, UBS published its own estimates of break-even points for iron ore miners, suggesting that while BHP Billiton and Rio Tinto had substantial buffers - still breaking even with the iron ore price at $US45 and $US43 a tonne respectively - Fortescue's break-even point was at US$72 a tonne and Atlas Iron's at $US82. The pain of the low price environment has naturally been reflected in the profits and share prices of the iron ore companies, but its true impact goes much deeper. Iron ore ranks as Australia's most lucrative export commodity and an important part of state and federal government budgets. Leading economists estimate the iron ore price declines seen this year have robbed the federal government of between $US10 billion and $US15 billion in revenue, forcing it to chase new sources of revenue in unpopular places. "With an iron ore price like this, it is going to lower nominal growth," said former treasurer Wayne Swan, whose time in charge of the national purse was also bedevilled by iron ore price volatility.

"You'd have to say [the Abbott Government] would be starting to think that they've got a bigger challenge on their hands than they would have thought at budget time," said Mr Swan. The situation is far more problematic in the iron ore industry's home state of Western Australia, where less than seven years ago, revenue from all types of mining royalties represented barely 5 per cent of state government revenue. Having risen every year since, iron ore alone will deliver 19 per cent of government revenue in the current financial year, rounding out at about $5.59 billion. With iron ore revenues predicted to rise in every year of the four-year forward estimates period, Western Australia's financial position could be sound. But despite raking in billions of dollars from iron ore every year, WA mistakenly expected to be showered with even higher amounts of royalty revenues, and started spending before the proverbial chickens had hatched.

The WA government had expected iron ore prices to average $US122.70 this financial year, and will lose $49 million for every $US1 decrease in the average price below that target. The state is now using debt to fund its high public-sector wages, its new football stadium and its riverfront redevelopment, and despite being at the epicentre of the decade-long commodities supercycle, no longer has a Triple A credit rating. Campbell Jaski, a corporate restructuring expert at PPB Advisory, said a weaker Western Australian economy would unavoidably affect other state governments around Australia through the system of sharing GST revenues. "The flow-on effect will hit all the other states, because as WA's royalty rates reduce, their share of the GST which they currently give up to the other states will start to pull back," he said. "So all of a sudden Victoria, New South Wales, Tassie, Northern Territory, South Australia and Queensland will have to start paying back more GST revenue to WA as a result of the royalties falling in iron ore."

Former federal resources minister Martin Ferguson said a diverse range of businesses would also be feeling the impact from lower iron ore prices. "It also flows through to business in the loss of jobs and the loss of purchasing power," he said. "Declines in mining do have an Australia-wide impact. Think of the legal firms, the banks, environmental scientists, the airlines and the caterers, there is a huge multiplying effect." The existence of such links between the mining industry and the rest of the Australian economy has been hotly debated at times over the past decade, but the recent corporate profit season revealed no shortage of companies willing to bemoan the fading of the boom. Airlines, from the fly-in, fly-out or FIFO-focused Alliance Aviation to the more mainstream Qantas, named weaker demand in the mining sector as a factor in their deteriorating profit position.

Fresh from building a large accommodation facility for iron ore workers near Port Hedland, accommodation provider Fleetwood reported that the WA market had become "subdued" in terms of winning new work. The workwear clothing division that Pacific Brands recently sold to Wesfarmers had been affected for some time by softer than expected demand in the resources sector, while even Fairfax Media, the owner of this publication, blamed weak conditions in the mining sector for the lower revenues seen in its rural newspapers over the past year. While some high-profile bears like former BHP executive Alberto Calderon expect the iron ore price to continue falling below $US80 per tonne, most investment banks expect it to be higher by Christmas. Morgan Stanley expects the price to average between $US85 per tonne and $US95 per tonne in the 2015 calendar year, while Citi expects it to average $US90 per tonne in 2015 before slipping to average $US80 per tonne in 2016. China's demand for steel, and therefore iron ore, is expected to continue growing until 2025 or 2030, but beyond that time demand will need to come from somewhere else.

Rio Tinto has optimistically suggested that iron ore demand in India and South-East Asian nations like Indonesia and Vietnam will start to rise after 2020, but there's little certainty around the predictions. By then, Mr Calderon argues Australia must have moved on from its reliance on iron ore to be supplying China with "middle income commodities" like meat, grains, energy and copper. But he warns that serious reform and investment in infrastructure will be needed to make that happen. But amid the gloom, (and there has been plenty of it on offer this week), it's worth considering the lot of the workers at Port Hedland, where the vast majority of Australia's iron ore sets sail for Asia. While the peak of iron ore prices and stock values was undoubtedly reached in early 2011, the sleep-deprived workers at Port Hedland know all too well that the peak for iron ore exports through the port is yet to come.

Australian exporters will continue to grow the volume of exports each year until the end of the decade at least, and according to some estimates the increased export volumes should be enough to offset the falls in the commodity price, ensuring consistently higher export values. Despite the severe price falls that have already been witnessed in the early months of the 2015 financial year, the federal government's top commodities forecaster, the Bureau of Resources and Energy Economics (BREE), predicts the value of Australia's iron ore exports will be about 3 per cent higher this year than last at just under $80 billion. Export values were tipped by BREE earlier this year to continue rising on the back of higher export volumes at a compound annual growth rate of 7.4 per cent to reach $87.7 billion by the 2019 financial year, but those numbers could yet be revised down when the bureau updates its forecasts later this month. Cleveland Mining boss David Mendelawitz was involved in the early Fortescue days when iron prices were closer to $US30 per tonne. Loading

He reckons the strength of the sector depends on your perspective. "Prices are not low, the issue is that costs are high. Not so long ago people would have wet their pants in excitement at the prospect of $US80 per tonne iron ore prices."