The World Bank is predicting the iron ore glut could continue for up to two years, putting sustained pressure on the commodity's price and Western Australia's royalty revenue.
Iron ore price have more than halved over the past year, as Australia and Brazil have massively ramped up exports, creating a glut in the market.
It is a state of affairs WA's Treasurer Mike Nahan is getting used to, with the price tumble already punching a hole of at least $1.5 billion in the budget.
"I don't think you're going to see a significant upswing in the price of iron ore for the foreseeable future," he said.
"The reality is there's a hell of a lot of supply coming onto the market from Australia and Brazil and there's slowing demand in China.
"That's just the reality, we're price takers here and we will look at how we forecast iron ore."
Despite the prediction, the World Bank is forecasting iron ore prices will average $US 75 a tonne this year, up from its current lows of around $US 65.
It is a glimmer of hope the Treasurer welcomed.
"They have 75 US dollars a tonne which is 10, 12 dollars higher than today, I took that as good news," Dr Nahan said.
Chinese ban on Brazilian maxi ships lifted
Some observers believe that prediction is too optimistic, saying prices could worsen further with China lifting a three-year ban on the docking of "Valemax' ships at its ports.
Brazilian-based firm Vale designed the ships to allow the company to transport more tonnes of iron ore in each journey from South America to China.
Bell Potter Securities broker Giuliano Sala Tenna said it was one of the few ways the company could compete on transport costs with Pilbara miners.
"It's going to drive down the cost curve for Vale, it's going to allow them to be able to get iron ore into China at a slightly cheaper cost than they would have otherwise been before," he said.
"I think it points to another reason why iron ore pricing is probably unlikely to rally any time soon and why we could continue to see some downward pressure on iron ore."
When implementing the ban, the Chinese Government said it was due to safety concerns but Mr Sala Tenna said the industry suspected it had a more sinister motive.
"It was an interesting ban when it was put in place. Initially, we thought there was maybe some things going on behind the scenes, maybe some of the Chinese shipping partners didn't want the Valemax in the port because it was forcing them out of business as well," he said.
He said he believed China was now seeing the benefits of allowing more tonnes into the market.
"It's very hard to stand in the way of free markets, the Valemax is a good ship, it's going to help them drive costs down," Mr Sala Tenna said.
"At the end of the day I think China really wants to drive down the costs in iron ore as low as they can because that's going to benefit their economy to some extent." |
