Chinese steel mills have started to cut their production as tighter credit conditions and a cooling real-estate market bite in the world’s biggest steel market, pushing the cost of iron ore to a 15-month low.

The price of the iron ore in the spot market plummeted on Tuesday to the lowest level since July 2010, dropping a hefty 7.2 per cent – the biggest one-day drop in more than 26 months – to $128.50 a tonne, according to pricing agency Platts. Iron ore prices have fallen more than 30 per cent over the past six weeks.

The rapid drop has opened a huge gap between spot prices and quarterly contracts, pushing Chinese steelmakers to demand a renegotiation of contracts. Traders said that some steelmakers were threatening to walk away from their contracts if miners refused to accept lower prices for October-December.