Iron ore forecast to average below $US50 a tonne in 2018

Iron ore will average below $US50 a tonne next year and remain under that mark through 2019, according to the latest forecasts from the Department of Industry, Innovation and Science.

In its June quarter report, the department’s iron ore forecast was revised down from $US51 a tonne to $US49 a tonne in 2018, and to $US47 a tonne in 2019.

The department forecast the iron ore price to average $US55 a tonne in the second half of 2017.

“The recent strength of China’s steel sector is expected to provide some short-term support,” the department reported.

Nevertheless, the iron ore price is forecast to ultimately decline, the department added.

“Iron ore port stocks in China have steadily grown to record highs, reaching an estimated 140 million tonnes in June 2017,” it explained.

“The seaborne iron ore market is forecast to remain well-supplied by low-cost producers in 2018 and 2019. Demand for iron ore is forecast to moderate over the same period, as steel production declines in China.”

High iron ore prices at the end of 2016 and start of 2017 resulted in a rebound in iron ore production in China and other nations, according to the department.

“An extended period of low prices is likely to be required to displace the additional supply,” it reported.

Meanwhile, Australia’s resource and energy export earnings in the 2016–17 financial year are estimated to have reached $205 billion, the department report outlined.

This is a 25 per cent increase in earnings on the previous financial year, according to the department, driven by price increases in iron ore and metallurgical coal.

However, earnings are forecast to decline marginally in 2017–18 to $202 billion, and decline further to $200 billion in 2018–19, with prices for the key commodities expected to weaken.

Chief economist Mark Cully said the price gains were not expected to last over the next two years.

“Global resource and energy commodity demand growth — particularly for steel making commodities — is expected to slow in the next two years, driven largely by a slowdown in infrastructure spending and construction activity in China. Lower demand growth is expected to adversely affect iron ore and metallurgical coal prices”, Cully said.

The report expects growing liquefied natural gas (LNG) export volumes to offset declining prices in other commodities, with LNG forecast to add $14 billion to Australia’s resources and energy exports.