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The Australian goverment raised its forecasts for iron ore, LNG and metallurgical coal prices for 2018 and 2019 in the Resources and Energy Quarterly report. However in the long term it expects prices in iron ore to fall.

Australia Iron Ore March 2018

The report is released quarterly by Australia's Department of Industry, Innovation and Science forecasts FOB Australia iron ore to average $61.80/mt this year raising it $10.30/mt higher than the forecast from October-December 2017 quarter and $11.30/mt from the year earlier forecast.

"The iron ore price has held higher than expected in early 2018, and some short-term support is expected from ongoing resilience in steel prices and production in China, The projection is underpinned by the assumption that first, the price will trend towards the break-even level required by producers of the last tonnages needed to meet demand, and second, that a small (5 per cent) proportion of producers (largely in China) will be loss-making,'

However, mindful of the vagaries of commodity swings and the political maneuverings in Australia the report cautioned that prices are still expected to fall in the longer term.

"The iron ore price is projected to decline further to $49/mt (FOB Australia, in real 2018 dollars) in 2020, as a result of moderating demand and growing supply, before a modest recovery to $53/mt in 2023 as supply growth softens.

A comfort for Australains is that despite the forecast fall in prices, the vast majority of Australian producers were expected to remain highly profitable due to high quality and low-cost production.

Notably the new report shaved 6 million mt from the December quarter's forecast for 2018 Australian iron ore exports, taking it to 874 million mt, and dropped the 2019 forecast by 14 million mt to 880 million mt.

"Roy Hill faced some technical difficulties in the December 2017 and March 2018 quarters, but is expected to return to its nameplate capacity of 55 million tonnes [mt] later in 2018,' Australian iron ore exports to grow to 891 million mt in 2020 and then to 896 million mt in 2021, before easing back to 895 million mt and 894 million mt in 2022 and 2023,

As we cautioned last month in Australia's Offshore Oil & Gas Exploration Slump an Economic Risk   the report warned that "Iron ore exploration expenditure is likely to have largely bottomed out, with ongoing investment increasingly needed to replace depleting reserves,'

Source: Resources and Energy Quarterly

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