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Iron ore miners in Australia's Pilbara region are ramping up output. Exports are forecasts to rise 4 per cent this year.Photo: Reuters

Australia cuts forecast for iron ore prices amid slump in Chinese steel output

Leading global producer Australia lowered its forecast for iron ore prices as Chinese steel production eases, but said export volumes were expected to grow as suppliers ramp up output.

AFP

Leading global producer Australia lowered its forecast for iron ore prices as Chinese steel production eases, but said export volumes were expected to grow as suppliers ramp up output.

The price was forecast to fall to US$54.40 a tonne for this year and slip to US$52.10 next year as China's output of steel, of which the commodity is a key ingredient, weakens, Australia's Department of Industry and Science said in a quarterly report.

"China's steel production is forecast to contract in 2015 and 2016 as the seaborne supply of iron ore increases," the report said. "These factors are forecast to drive the price of iron ore down 38 per cent in 2015 … and a further 4.2 per cent in 2016."

Australia's revenue has taken a hit as the price of ore, its largest export, dived 60 per cent over the past year to reach a decade low of US$47.08 per tonne in early April. It is currently about US$60 a tonne.

Increased supply by miners such as BHP Billiton and Rio Tinto as well as softer growth in Chinese demand have been blamed for the tumbling ore price, which has intensified pressure on smaller miners with higher production costs. The latest forecasts are down from the US$60.40 a tonne and US$56.80 a tonne projections in the department's March quarterly outlook.

"Housing construction in China remains a key area of uncertainty," the report said. "Although residential construction is forecast to remain moribund through 2015 and into 2016, a rebound in activity could significantly boost domestic steel consumption and demand for seaborne iron ore."

China's property sector has been a key part of the nation's economic boom in recent years, driving demand for materials such as steel.

The department said Australia's iron ore exports were forecast to rise 4 per cent this year to 748 million tonnes as suppliers ramp up output from the Pilbara region in Western Australia.

Supply is also expected to be boosted by initial production from Hancock Prospecting's massive Roy Hill mine.

Ore exports were projected to jump 10 per cent in 2016 to 824 million tonnes, the report added. Brazil's ore exports were forecast to rise 7 per cent this year to 390 million tonnes.

This article appeared in the South China Morning Post print edition as: Australia cuts price forecast on Chinese steel slump
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