Price of iron ore on the move downwards

As debate erupts over whether or not Australia’s iron ore industry is in need of a government inquiry, the price of the commodity is quietly falling again.

After rising to above $US60 per tonne last week, iron ore is now trading at a two-week low of $US58.40 per tonne.

It follows a tumultuous year for the commodity which has seen it fall and rise amid volatility in the market.

Iron ore entered 2015 valued at $US71.26 per tonne after a horror 2014 which saw it lose 47 per cent of its value.

But the price soon started to head south at a pace no one accounted for.

By April 2, iron ore was trading at a record low of $US46.70 per tonne, forcing companies to mothball operations and cut thousands of jobs.

In the same month, from April 16, iron ore made a 33 per cent rally which saw it rise above $US60 per tonne again.

But throughout the rise, analyst sounded cautious warnings that the price hikes would not last.

Just this week, most have come out to reiterate their positions that the commodity won’t see any real gains for some time to come.

Citi says the rally in iron ore prices has peaked and forecast sub $US40 prices of the second half of 2015.

Ratings agency Fitch also cuts its iron ore price predictions to $US50 per tonne yesterday.

Even the Federal Government is bearish, forecasting an iron ore price of $US48 a tonne for 2015-16.

This is down from the $US60 a tonne that Treasury predicted the commodity would fetch when it updated its budget in December 2015.

The price cut is expected to slash around $A20 billion in tax receipts from forward estimates.

Since the last budget, the value of forecast iron ore exports has been downgraded by around $90 billion.

Treasury described the price drop as the “the most significant development” since the last budget and said uncertainty around demand and supply meant the iron ore price was subject to “considerable risk”.

It said the expansion of low-cost supply would continue, with 50 million tonnes of new iron ore exports in 2015.

"The continued ramp-up in 2015 will see Australia confirm its position as the single largest supplier globally," budget papers said.

Meanwhile, the government does not expect demand out of China to show a substantial increase.

The world’s biggest importer of iron ore has set a 7 per cent growth target for 2015 and budget papers predict weakness in China’s housing sector is expected to weigh on the country’s continued demand for iron ore.

"This reflects the substantial stock of unsold housing that has built up over recent years, as housing starts have consistently outstripped sale," it said.

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