Treasury sees higher for longer iron ore priesMatthew CranstonIf...

Treasury sees higher for longer iron ore pries

Matthew Cranston

If iron ore prices remain high until the end of the June quarter next year the federal budget will be a combined $6.1 billion better off this financial year and next than the budget forecasts.

Treasury estimates that the iron ore price without freight costs (free on board) will drop to $US55 a tonne by the end of the June quarter – two quarters later than was assumed in the July update.

Ahead of China's Golden Week holiday this week, where there is no trading, the 62 per cent quality benchmark iron ore price rose 5 per cent to $US123.47 a tonne including freight costs, its highest since September 18. This daily price includes the cost of freight which is about $US8 a tonne.

"Iron ore prices have been supported to date by strong Chinese demand," Treasury said. "Consultation by Treasury highlighted a relatively common view that, while supply issues from Brazil are easing slightly, in the near term global supply is not expected to recover rapidly and Chinese stimulus is expected to sustain demand."

"Consequently, the iron ore price is assumed to decline to $US55 per tonne FOB by the end of the June quarter 2021, two quarters later than was assumed in the July update."

"Some market and industry participants have highlighted a risk that iron ore prices could remain high for an even longer period of time."

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