Iron ore has once again defied naysayers and crept past $US120 a tonne, unexpectedly injecting billions of dollars into the nation’s economy in the process as budget season fast approaches.
The spot price for Australian exports of the steelmaking commodity to China are currently sitting at $US120.50/t after steadily climbing from around $US100/t in mid-March.
Uncertainty surrounding China’s opaque property sector has fuelled wildly varying price estimates.
The Middle Kingdom’s sluggish residential construction market pushed iron ore prices down from $US145/t at the start of the year, but renewed growth in the country’s high-tech manufacturing industry has seen an uptick in steel demand.
This recent rebound is at odds with predictions from a number of analysts so far this year.
Capital Economics is anticipating a $US85/t price come the conclusion of 2024, ANZ was expecting a trading range between $US90 and $US110/t through the year, while Westpac forecasted a sub-$US100/t price environment going forward.
The Federal Treasury had a $US60/t assumption by the end of next month, a conservative view the WA State Government also held.
Early last year, State Treasury predicted prices would average at $US87.40/t for the 2023 fiscal year and return to a “long-term annual average” of $US66/t for the current financial year.
It then bumped up the forecast in December to $US104.20 for the current financial year, before again predicting a return to $US66/t for FY2025.
The recent price spike will be a tailwind for WA Treasurer Rita Saffioti when she hands down her Budget on Thursday and for her Federal counterpart, Jim Chalmers, when he does the same next week.
Ms Saffioti has flagged she will raise the cautious price forecast in the Budget after iron ore royalties brought in $9.2 billion for WA’s Budget last financial year.
On a national level, a $US10/t increase in the iron ore price is worth over $5b in terms of nominal gross domestic product.
WA’s Pilbara region is responsible for around 99 per cent of Australia’s iron ore output.