Government iron ore price outlook remains below $US50 a tonne

The Australian Government’s Department of Industry, Innovation and Science remains steadfast in its forecast that the iron ore price will average below $US50 a tonne in 2019.

In the department’s June quarter report, it forecast that iron ore would average $US55 a tonne in the second half of this year, before falling to $US49 a tonne in 2018 and $US47 a tonne in 2019.

The iron ore price has, however, defied the forecast for the second half of 2017, with it surging to $US73.70 a tonne in late July as a volatile year continued for the commodity.

It averaged an estimated $US65 a tonne in the September quarter, according to the department’s report for the three months, and has been forecast to average $US64 a tonne for 2017.

The department slightly updated its iron ore price outlook in the report, released today, with it now forecasting a decline to $US50 a tonne in 2018 and $US49 a tonne in 2019.

“Growing low-cost supply from Australia and Brazil and moderating demand from China, are expected to weigh on the iron ore price,” the department explained in the report.

“There are several uncertainties impacting the outlook for the iron ore price. The first is the pace and magnitude of the decline in China’s steel production, which in turn largely depends on government policy.

“Second, companies have benefited from the recent price rally, and thus may be able to continue to produce at cash losses for a longer period of time. The resultant oversupply may bring on exaggerated price weakness.”

The iron ore price has lost ground in recent weeks, with it falling slightly overnight to $US61.48 a tonne.

Meanwhile, the September report revealed that Australia’s resource and energy export earnings increased by 27 per cent to $204 billion in 2016-17.

The increase was largely driven by price increases in iron ore and metallurgical coal – Australia’s top two commodity exports.

Price spikes in metallurgical coal and iron ore in 2016–17 were aided by capacity cuts in coal, a resurgence of China’s steel sector, as well as by temporary supply disruptions, the report found.

“Buoyant prices for steel-making commodities and thermal coal, and increased LNG export volumes, are expected to increase Australia’s resource and energy export earnings to a record $211 billion in 2017–18,” the department’s chief economist Mark Cully said.

The department forecast earnings to decline to $201 billion in 2018-19.

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