ANZ slashes iron ore price outlook

ANZ has cut iron ore price forecasts for the next two years as a result of expanded low-cost supply and flat demand.

The bank says iron ore will average $US55 a tonne in 2016, down $US5 a tonne on earlier predictions.

In 2017, ANZ expects iron ore will fetch an average of $US60 a tonne, down $US3 a tonne.

For the rest of 2015, the iron ore price is expected to average $US56 a tonne.

An oversupply of the commodity and slow growth out of China worked to push the price of iron ore to a record low of $US46.70 tonne on April 2.

Since then, the price has recovered to around $US56 a tonne after announcements from two of the world’s biggest producers – BHP Billiton and Vale – that they would cut output.

But ANZ’s head of commodity research Mark Pervan said the cuts would not work to usher in a price rise.

"Despite this, we feel fundamentals still look weak. Steel prices have only shown a mildly positive response, and low-cost iron ore supply continues to expand,” Pervan said.

"Fundamentals are still bruised by expanded low-cost supply and flat demand.

"Our price downgrades are for 2016 and 2017 on a prolonged period of weakness in China's steel market."

The iron ore price crash has cost the Federal Government $30 billion in lost revenue over four years.

Prime Minister Tony Abbott revealed the figure at a business lunch in Sydney last week ahead of the Federal Budget announcement tomorrow.

"Since last year's budget, collapsing iron ore prices and the subsequent write-down in tax receipts have already driven a cut in government revenue of more than $30 billion over four years," Abbott said.

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