Australian miner Fortescue dragged down the country's stock market after reports it was in discussions with lenders about debt payments.

The iron ore digger dropped 15% on press reports it had asked lenders to waive all its debt covenants for the next 12 months.

The company's stock eventually closed down 48c, or 13.8%, at AUS$2.99; it is down 48% over the last six months, driven by falling iron ore prices.

The tumbling share price knocked about AUS$1.bn off Fortescue's market capitalisation.

BBY analyst Mike Harrowell told the Sydney Morning Herald that "the penny was dropping" among investors about the precarious position Fortescue was in.

If Fortescue does breach its covenants, it would theoretically have to immediately pay up the $9bn in gross debt it owes.

"Once you're in breach of your [covenant] ratios, all debt is payable," Harrowell said.

Analysts said Fortescue's fortunes would turn on the price of iron ore, which the firm needs to rise substantially.

"If the iron ore price goes up to $120 [a tonne], we'll wonder what all the trouble was," said Morning Star analyst Matthew Hodge.

"If it hangs around at $US100, there'll be trouble."

Iron ore prices staged a rally in the past few days after China announced a one trillion yen - around £100bn - boost for its construction industry.

But a lack of detail on what projects would be affected took the steam out of the upswing.

Analysts said an oversupply of steel, of which iron is the main constituent, was continuing to blight the market.

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