* Western Desert put into administration amid start-up problems
* Iron ore price slumps 38 pct this year
* Share prices of iron ore miners battered (Adds China August import data, iron ore supply volumes, graphic)
By Sonali Paul
MELBOURNE, Sept 8 (Reuters) - Plunging iron ore prices have dealt their first blow in Australia, sending fledgling miner Western Desert Resources Ltd into administration after it failed to reach a deal with bankers over its debt.
Western Desert was caught out by a move by the world’s top four iron ore producers to flood the market with low-cost supply, outpacing Chinese demand growth for the steel-making ingredient and slashing iron ore prices by 38 percent this year.
The Northern Territory-based producer was also hurt by teething problems at its Roper Bar mine, but analysts warned many of Australia’s other smaller to medium-sized producers could soon feel the pain of the recent price slump.
“At current prices they can survive. But from here on, if prices go lower, it progressively gets tougher,” said Mike Harrowell, director of resources at broker BBY.
UBS estimated that even at present iron ore prices, smaller producers Atlas Iron Ltd, Gindalbie Metals Ltd and Grange Resources are all under water.
Iron ore, which is priced in U.S. dollars, has sunk to a five-year low of $83.60. Australian miners have felt the impact even more as the Australian dollar has risen 5 percent against the U.S. dollar in that time.
Iron ore output from Australia and Brazil, dominated by giants Vale, Rio Tinto , BHP Billiton and Fortescue Metals Group, is forecast to rise 15 percent this year, adding 132 million tonnes.
China imported 8.5 percent more iron ore in August than a year earlier, but imports for the year are expected to grow by only 49 million tonnes, well below the volume of extra supply, according to Australia’s official forecaster.
With huge economies of scale, Rio Tinto and BHP can remain profitable even if the delivered price to China slid to $55.
But the glut has spooked investors in other miners, sending shares of world no.4 producer Fortescue down a third this year. Smaller miners like Atlas Iron, BC Iron and Gindalbie have lost more than half their value.
Western Desert, which started mining only last December, said on Monday it was suspending its shares and appointing an administrator after Macquarie Bank rejected its funding proposals for paying down A$81 million in debt.
The company had struggled to ramp up output to its target rate of 3 million tonnes a year due to poor ore grades and shipping constraints.
“The recent substantial fall in the iron ore price to a five year historical low, which shows no sign of abating in the short term, when coupled with a strong Australian dollar, has substantially contributed to this outcome,” it said in a statement.
“Western Desert is in a unique situation as it was in start-up mode during a time of extreme iron ore softness,” said Andrew Shearer, a resources analyst at PAC Partners, which works with broker Phillip Capital.
The weak iron ore price has also raised uncertainty around a bid by BC Iron for Iron Ore Holdings, with one of the conditions on the deal tied to iron ore prices not falling below A$90 a tonne for 20 consecutive days.
That price was breached last Friday and BC Iron could extend the offer deadline beyond September 30, which could give them the option to withdraw if prices stay weak.
“They don’t necessarily pull out, but may seek to re-price the merger. They have possibilities,” Harrowell said.
BC Iron and its advisers declined to comment on what the company may do, given the sharp drop in iron ore prices.
Reporting by Sonali Paul; Editing by Richard Pullin