Iron ore surge fills Australia’s coffers

The iron ore price has been on the rebound in recent months, significantly boosting the Federal Government’s budget position in the process.

As an important steelmaking ingredient, iron ore has supported the industrialisation of China, Japan and South Korea, but it has endured tumultuous price undulations in recent years.

Two consecutive slumps 12 months apart saw iron ore prices drop below $US90 per tonne (t) in November 2021 and November 2022.

This forced some of Australia’s mid-tier iron ore miners to suspend operations, including CuFe and its JWD operation in Western Australia.

In recent years, iron ore felt the brunt of a shaky Chinese economy and a seemingly endless COVID-zero policy implemented by the country, which closed Chinese steel mills and quelled iron ore imports.

But the ferrous metal is on the rebound, keeping its head above $US100/t for much of 2023 and most recently climbing above $US135/t. In fact, Mysteel had the price for 62 per cent seaborne Australian iron ore fines at the port of Qingdao at $US137.4/t on Tuesday.

This comes as China looks to inject life into its economy through stimulus measures and policy decisions that support industries such as an ailing real estate sector.

As iron ore sentiment improves, the Federal Government announced a better-than-expected mid-year economic and fiscal outlook (MYEFO) this week, with a $13.9 billion deficit forecast from the May 2023 budget slashed to $1.1 billion.

While the Federal Government attributed the economic improvements to “fiscal restraint and continued focus on reprioritisations and savings”, there’s no doubting the role iron ore tax and royalty contributions have played in this resurgence.

The May 2023 budget assumed iron ore prices would be averaging $US60/t by mid-2024, but that is hardly the reality as it currently stands, and the improved iron ore outlook also has the backing of UBS.

The global financial services firm released a report this week forecasting iron ore prices to trade between $US100/t and $US135/t over the next 24 months.

Given the tumultuous run the commodity has been on in recent years, iron ore price behaviours can be unpredictable, but sentiment is on the rise, and 2024 could be a big year for the commodity.