Finally, Treasury has gone bearish on iron ore in the budget forecasts

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Following a sharp decline in the spot price seen in recent years Treasury has once again lowered its forecasts for iron ore in the 2015-16 budget.

Having previously forecast a freight on board (that which excludes freight costs) price of $US60 a tonne in the MYEFO of December 2014, Treasury now forecasts prices to average $US48 a tonne in the latest forward estimates.

This represents a full 50% cut to the Treasury forecast made in the 2014-15 budget. It is also expected to wipe around $A20 billion in tax receipts over the forward estimates.

The government state that the decline is “the most significant development since the 2014-15 Budget” with “inherent uncertainty around both demand and supply factors mean(ing) the price outlook is subject to considerable risk”.

Given the difference between the previous forecast and reality this seems like a sensible and necessary disclaimer.

Here’s a chart of the spot iron ore price over the past six years.

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