While the federal government expects the recent rebound in the spot iron ore price to be sustained in the financial year ahead, that view is not shared by its counterparts in the Western Australian government.
In the state budget released on Thursday, the WA treasury forecast the benchmark spot iron price would average US$47.70 (CFR) a tonne in 2016/17, more than US$10 below the equivalent forecast offered by its counterparts in Canberra just a little over a week ago.
It’s crucial to distinguish that the Western Australian forecasts include freight costs while those for the federal government do not.
Comparing apples with apples, Western Australia’s free on board forecast (FOB) equates to US$43.70 a tonne based off pricing from the Steel Index, some US$11.30 below the US$55 a tonne level forecast by the federal government.
In the federal budget, treasury estimated that a US$10 per tonne reduction in the iron ore price would result in a $6.1 billion reduction in nominal GDP in the 2016/17 fiscal year.
On Thursday the spot price for benchmark 62% fines fell by 1.8% to US$54.40 (CFR) a tonne according to the Steel Index, equating to a FOB price of US$50.75 a tonne.
Here’s the Western Australian government’s key budget assumptions, including for iron ore, for the upcoming financial year and forward estimates.