Government Forecasts 20% Fall For Iron Ore
The Australian government’s commodities forecaster again sees the price of iron ore falling 20% in 2018, as it did a year ago - but the outcome was very much different. It has become a common occurrence in recent years for a negative forecast from this body to start the year.
Australia’s Office of the Chief Economist (OCE) in the Department of Industry forecast in the December edition of its Resources and Energy Quarterly, published on Monday, that the price of iron ore would fall 20% in real terms during this year to $US51.50 a tonne, down from an estimated $US64.30 at the end of 2017.
The government estimate contrasts with private forecasts including that of Swiss bank UBS, which predicted in December that the price would remain level from 2017 around $US64 this year.
The OCE also forecast a further fall for iron ore of 9.2% in 2019 to $US46.70 a tonne.
The office said it expected ongoing volatility in early 2018 as conflicting forces influenced iron ore’s price, but added that beyond the first half of the year, “the iron ore price is forecast to decline to US$49 a tonne, reflecting growing supply from low-cost producers in Australia and Brazil, and moderating demand from China as steel production eases.”
The OCE added that China’s steel production was “sensitive to a range of economic, monetary and environmental policies, and government policy remains the key uncertainty underpinning the outlook for the iron ore price.”
The Metal Bulletin’s 62% Fe Iron Ore Index price last Friday was $US76.80 a tonne cfr Qingdao (in northern China) - up 26 cents a tonne with the month-to-date average: $US75.76 a tonne.
But before cutting our throats in a panic remember that the OCE does have a wobbly forecasting record, meaning take this estimate with a grain of salt.
In January 2017 it predicted iron ore to average just $US51.60 a tonne last, easing further to $US46.70 in 2018.
The 2017 forecast was up from its previous estimate of $US44.10, reflecting last year’s rally, but the outcome was far above the forecast - in fact the actual price was 25% higher than that forecast.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.