Iron ore prices slide--are the terms of trade next (chart)?

A solid note from Westpac, who seem especially bearish on all data of late given their December rate cut call (following which they expect three more). On the subject of calls, I feel for my mate Stephen Koukoulos, who is officially forecasting two cuts in November, having got October wrong. I implored Stephen to wait for the unemployment and inflation data, but he responded that would make his forecasting challenge too easy. Of course, like Bill Evans, the effluxion of time may prove him to be especially prescient. Here's Westpac on the latest iron ore prices:

"Spot iron ore prices price have fallen quite sharply over the last 2 weeks, down 8% to $158/t. In the last 4 weeks, Australian spot fines, as measured by the TSI, are down almost 12% landed in China.

While the Dec qtr iron ore contracts will be broadly in line with the Sep qtr contracts, if the spot prices maintain the current level for the remainder of the Dec qtr, the contracts would fall around 13%. But that is not the end of the story. Brazilian prices have fallen by a larger 16%mth and historically, where Brazilian prices go Australian prices tend to follow.

There are also further signs of an easing in Chinese demand for steel. Rebar prices are down almost 5%mth while hot rolled coil is down 6.3%mth. Furthermore, Chinese steel scrap prices are down 5%mth & Chinese domestic iron ore price have fallen almost 6%mth.

Given the greater than normal rise in inventories over the last 6 months (+12%) Westpac has been looking for a correction to iron ore prices. As the correction unfolds we reaffirm our forecast for a low in spot iron ore prices around US$140/t in mid 2012."