Iron ore prices set for major fall

AUSTRALIA’S government has forecast a steep fall in the price of iron ore, sending down the share prices of mining firms.

In its Resources and Energy Quarterly report, the Department of Industry, Innovation and Science (DIIS) predicted that iron ore prices will fall to US$51.6/t this year and US$46.7/t in 2018, down from around US$80/t today.

Current iron ore prices have been lifted by supply disruptions and a resurgence in demand from China. However, DIIS expects that the gains will be reversed as demand for steel from China’s residential construction sector slips and supplies rise.

The publication of the report saw share prices in BHP Billiton, Rio Tinto and Fortescue Metals fall, with the latter losing more than 3% in early trading.

In the foreword to the report, DIIS chief economist Mark Cully wrote that despite the expected drop, the wider production phase of Australia’s mining boom will continue. Declines in the likes of iron ore are expected to be offset by a 56% increase in LNG export values following the large investment in production capacity over the last ten years.

Taken altogether, Cully expects that Australia’s resource and export earnings will increase by 30% in 2016–17 to a record A$204bn (US$150bn), however this will decline marginally to A$202bn in 2017–18.

“The energy and resources sector continues to drive our economy. While all Australians have the sector to thank for export earnings, regional communities across Australia also benefit through the jobs it creates and the local investment it supports,” said minister for resources and Northern Australia Matt Canavan.