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Category: Business, Economics and Finance / Economic Trends / Mining Industry / Federal Government / Government and Politics

Federal Government agency slashes iron ore price forecast

Friday, 8 Jul 2016 11:54:47 | Thuy Ong

The Federal Government anticipates downward pressure on iron ore prices. (ABC News: Jenny Magee)

Australia's Department of Industry, Innovation and Science has slashed its forecast for iron ore prices and expects the commodity to slide to $US45 a tonne in 2017.

Prices are predicted to decline in the latter half of 2016 on challenging market conditions.

Australia is the world's biggest iron ore shipper and, in March, the department had previously forecast a higher price for iron ore at $US56 a tonne, according to Bloomberg.

"The revision is based on the assumption that loss making operations may continue to produce for longer than previously expected," the department said in its quarterly resources and energy report.

"It also factors in increased supply from India and additional cost savings reported by iron ore producers."

Spot iron ore prices have fluctuated wildly in the past year, with the commodity dropping to a December low of $US38.30 a tonne, before rebounding to more than $US70 a tonne in April. Prices have since dropped again, and traded flat at $US55.80 a tonne overnight.

Yesterday, credit ratings agency Standard and Poor's lowered Australia's credit rating outlook from stable to negative and said a key factor in its decision was a vast divergence between its forecast for iron ore prices and the Government's budget prediction.

S&P expects iron ore prices to be close to $US20 lower than the Federal Government's forecast of $US55 a tonne in its most recent budget.

The iron ore price averaged $US48 a tonne in the first half of 2016, which is a slide of 13 per cent year-on-year.

"Despite the large movements in prices, the market fundamentals are broadly unchanged - demand growth is slow and the market remains well-supplied," the department observed.

The department also expects iron ore prices to recover more slowly in 2017 than previously forecast, with iron ore export earnings under pressure despite robust growth in volumes.

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