Cuts to new iron ore contracts could slash Western Australia’s royalty intake by as much as $240 million each year, according to Government estimates.
WA Treasurer Troy Buswell, who handed down the budget last month, is predicting a 30% plunge in iron ore prices and softer prices for other commodities in the new financial year.
The estimates follow the finalisation of Japanese iron ore contracts, in which Rio subsidiary Hamersley Iron agreed to a 33% reduction in the contract price of fine ore and 44% price cut for lump ore.
Analysts predict the reduction could set this year’s price benchmark and adversely affect the iron ore sector, which makes up a significant portion of WA’s export market.
Experts agree, and predict royalties may decline by as much as $362 million each year in WA as production volumes contract and the Australian dollar strengthens against the U.S.
Treasurer Buswell says there is no doubt the price cut will affect WA’s finances.
“This will reduce our royalty income for the next financial year, but this is one of the many volatilities the government has to manage in looking after the state’s finances,” he said.
A spokesperson for the WA Treasurer’s office told MINING DAILY the benchmarks, which will have flow-on effects for WA’s economy, will take effect as soon as Japanese contracts come into play.
“However, it is too early to tell if the price reduction will affect the Royalties for Regions scheme,” she said. “Things will be clearer when all negotiations are finalised.”
While some have expressed concern for the future of WA iron ore, others remain optimistic.
“Prices are still at the second highest price on record and are 10% higher than spot prices,” Western Plains Resources chief executive Bob Duffin said.
He believes the market is looking good for the future, which is a positive sign for WA’s royalty intake and Australia’s economy.