Iron ore price forecast for 2016-17 cut by 2% to $44.20 per tonne

Fortescue Chief Executive Officer (CEO) Nev Power holds a piece of iron ore in front of a remote-controlled truck at the Fortescue Solomon iron ore mine located in the Sheila Valley, around 400 km (249 miles) south of Port Hedland in the Pilbara region of Western Australia, December 2, 2013. Reuters/David Gray

Bleaker times await Australia’s iron ore industry as weaker price of the commodity in the international market caused Rio Tinto to shelve its US$20-billion (A$26.6 billion) Simandou iron ore project in Guinea. On Friday, the government lowered its iron ore price forecast for 2016-17.

Reuters reports that the Department of Industry, Innovation and Science, on its latest quarterly commodities paper, forecast price of the key steel-making ingredient to US$44.20 per tonne (A$58.85) from the March forecast of US$45 (A$59.95). But it is higher than the December 2015 forecast of US$40.40 (A$53.80).

The department explains, “Despite the large movements in prices, the market fundamentals are broadly unchanged – demand growth is slow and the market remains well supplied.” It sees not much change in iron ore prices in 2017.

In late June, BHP Billiton Chief Executive Andrew Mackenzie warned the iron ore glut is expected to last for a decade. As of July 1, there are 102.55 million tonnes of imported iron at major Chinese ports, the highest inventory level since December 2014.

The new forecast is lower than the average price of US$48 (A$63.95) for the first half of 2016. But Morgan Stanley predicted a 17 percent hike for 2016 at US$46 (A$61.28) and a lower US$42 (A$55.96) in 2017.

Business Insider reports that on Thursday, iron ore prices further tumbled as spot price for benchmark 62 percent fines went down by 1.54 percent to US$55.07 (A$73.37) a tonne, according to Metal Bulletin. Analysts believe the losses will extend to Friday.

VIDEO: Rio Tinto shelves iron ore project in Guinea