The Australian Government has revised its initial 2016 budget forecasts for iron ore, dropping them by a fifth as market volatility continues.
Iron ore has seen a major rally over the last six months, rising from below US$40 per tonne to reach just over US$70 per tonne in April, before sinking to more stable levels of around US$55 per tonne.
In March, prior to the rallies, the Australian Government forecast iron ore prices of US$55 per tonne, a massive increase from its former US$39 per tonne price point.
However continued volatile prices, off the back of the Brexit concerns, have forced a reforecast.
Now the Federal Department of Industry, Innovation, and Science’s latest Resources & Energy Quarterly report has dramatically slashed the Treasury’s initial predictions.
It predicts a price point of US$44.80 per tonne, down nearly 20 per cent from earlier Treasury forecasts.
The Department also predicted a similar price point for the rest of this year, at around US$44.20 per tonne, down from its earlier estimates of US$45.
“The revision is based on the assumption that loss-making operations may continue to produce for longer than previously expected,” the Department of Industry, Innovation and Science report said.
“It also factors in increased supply from India and additional cost savings reported by iron ore producers.
“Despite the large movements in prices, the market fundamentals are broadly unchanged — demand growth is slow and the market remains well-supplied.”
In terms of 2017 iron ore movements, the report stated “prices are expected to recover more slowly than previously forecast”.
Analysts at Morgan Stanley believe a steep decline is still on the cards for the metal after releasing its latest forecasts, although it is still an increase from its original lower price point prediction.
According to Bloomberg, the group has lifted its 2016 forecast to US$46 per tonne, and its 2017 outlook to US$42 per tonne – an increase of 13 per cent from previous estimates – however it has forecast a price of US$35 per tonne for the last three months of the year, expecting additional tonnages coming online from Roy Hill and Vale to drive down value