Here are the government’s updated forecasts for iron ore, coking coal and thermal coal. All forecasts are in US dollar terms.
Following renewed bouts of strength over 2017 and early 2018 iron ore prices averaged $67 per tonne free-on-board (FOB) in the March quarter 2018. Consistent with more recent declines, the iron ore spot price is assumed to be flat at $55 per tonne FOB over the forecast horizon. This is consistent with the MYEFO assumption.
An increase of $10 per tonne FOB in the iron ore price results in an increase in nominal GDP of around $5.5 billion in 2018-19 and just over $12 billion in 2019-20. Similarly, a decrease of US$10 per tonne FOB in the iron ore price results in a decrease in nominal GDP of an equivalent amount.
After significant volatility over the past two years, strength in metallurgical coal prices has persisted and prices are now assumed to fall a little later than in the MYEFO. The spot price of metallurgical coal is assumed to fall over the June and September quarters of 2018 to reach $120 per tonne FOB in the December quarter 2018, the same price level as MYEFO.
If metallurgical coal prices were to fall immediately to $120 per tonne FOB, almost two quarters earlier than assumed, nominal GDP could be around $0.6 billion lower than forecast in 2017-18 and $2.8 billion lower in 2018-19. This would result in a decrease in tax receipts of around $0.5 billion in 2018-19 and $0.3 billion in 2019-20.
Thermal coal spot prices have also persisted at elevated levels and are now assumed to remain higher, at $93 per tonne FOB over the forecast period, consistent with a recent average and the expected Japanese Fiscal Year contract price.
Continuing theme from the 2017/18 budget, the updated commodity price forecasts err towards caution rather than optimism.
Strength in commodity prices over the past year helped to deliver stronger fiscal revenues, underpinning some of the improvement in the budget bottom line.
The government will undoubtedly be hoping for a repeat performance in the year ahead.
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