Plummeting iron ore price to cost Federal coffers $3 billion, Treasury declares
![Treasurer Jim Chalmers said the Government was following developments closely because of their potential impact on the Budget.](https://images.thenightly.com.au/publication/C-15745386/725768b7f3eff3aba5ded671bc97d3f5ef052db8-16x9-x0y0w2048h1152.jpg?imwidth=810)
China’s plummeting demand for iron ore will cost Australia more than $3 billion, Treasury has warned.
A 38 per cent price drop since the start of 2024 has sounded alarm bells, with the economic success of both WA and the nation riding on iron ore exports.
The Federal Government revealed on Sunday that the price had already dropped below its projections.
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By continuing you agree to our Terms and Privacy Policy.May’s Budget predicted the price would tumble to US$60/tonne by the end of March 2025.
On Thursday, the iron ore price closed at US$81.80/t, below the around US$83 level that Treasury’s glide path assumed it would be at this time.
Treasury uses the Argus 62Fe ICX netback fob Australia for the iron ore spot price.
Weaker Chinese demand for steel, pushed by an economic softening amid a property downturn, saw the iron ore price drop 7.5 per cent last week alone.
![WA Treasurer Rita Saffioti said on Sunday the State Budget should withstand these shocks.](https://images.thenightly.com.au/publication/C-15745386/4d00f24333b2f2cac5f828c410d5b60ea5b07914.jpg?imwidth=810)
On Sunday, Treasury analysis revealed that a faster-than-assumed fall in the iron ore price could cost the Federal Budget $3 billion over the next four years.
So far this year, Chinese house prices are down 8.2 per cent and residential construction is down 60 per cent on a 2021 peak.
The vast majority of Australia’s iron ore comes from the Pilbara and is used in China’s steel mills.
Treasurer Jim Chalmers said the Government was following developments closely because of their potential impact on the Budget.
“Softness in the Chinese economy and the recent fall in iron ore prices are another reminder that we are not immune from volatility and uncertainty in the global economy,” he said.
“This is exactly why we take such a cautious and conservative approach to Treasury’s forecasts for resource prices and revenue.
”We’ve delivered the first back-to-back surpluses in almost two decades at the same time as we’re easing cost of living for Australians.
“We’ve always put a premium on responsible economic management, and that’s especially important amidst all this global uncertainty.”
WA’s State Budget, which raised its conservative estimate for the long-run iron price to US$71/t in May, is heavily reliant on the iron ore price.
Every US$1/t change in the iron ore price average over the financial year has a $91 million impact on the State Budget.
WA Treasurer Rita Saffioti said on Sunday the State Budget should withstand these shocks, as could iron ore firms, who were “low-cost producers”.
“Iron ore and all our commodities are volatile revenue sources, and that’s why we always forecast conservatively in our budgets,” she said.
“It’s also why we continue to focus on diversifying our economy, through investing in economic infrastructure like WA’s ports to facilitate new industries, boosting funding for tourism infrastructure around WA, slashing red tape for businesses and reforming WA’s approvals system.
“This will continue to support our economic growth and set us up for the future, while also ensuring Western Australia remains the engine room of the nation’s economy.”