Australia is forecasting an important drop in the price of iron ore — its most valuable export commodity — over the next two upcoming years to below actual market prices.
According to the Department of Industry, Innovation and Science forecasts, iron ore has an average price of $51.60 a ton this year and should be $46.70 in 2018, in comparison with current spot prices of around $80.
The price rise is being caused by a temporary lift in Chinese steel production and run ups caused by speculative commodities trading in China that will not last. The department said in its latest commodities outlook paper that “The rally reflects a combination of fundamental drivers and speculative trading, however, with the likely moderation of these factors over the outlook period, the iron ore price is still forecast to decline”. The department also dropped its forecast for exports of iron ore by 2% to 832.2 million tons in fiscal 2016-17 from 851 million previously. In December, iron ore shipments to China from Australia hit a record of 37.4 million tons.
As for the price of metallurgical coal, one of the best-performing commodities of 2016, it should rise by 59% on a contract basis to an average $182.20 a ton in 2017, with contract price averaged $114 a ton in 2016 according to the department.
Australia also lifted its average 2017 thermal coal price forecast to $74 a ton from $63, citing China’s supply side reform policies and lower output from Indonesia. Thermal coal averaged $62 a ton in 2016. The forecaster expects Australian Crude Oil and condensate output to remain steady at around 317,000 barrels per day in fiscal year 2016-17. Liquefied natural gas production is forecast to increase to 104.5 billion cubic meters in 2016-17 from 81.2 million Bcm the previous year.