The WA Budget and key parts of the State’s mining sector are facing economic crunch time after iron ore spot prices fell to just $US85.70 overnight.
In the face of growing supply out of Australia and Brazil, and troubles in the Chinese property market, it was a further drop of $1 over where it stood on Wednesday morning.
It is now around the price that it hit in August of 2009.
Every dollar fall in the average iron ore price costs the State Budget $49 million in lost revenue.
The Budget forecast iron ore to average $US122.70 a tonne through 2014-15. At current trends, it will have to average well over $US140 a tonne for the rest of the year to deliver on the Budget forecast.
The Budget is also predicated on the Australian dollar averaging US90.6 cents through the year. It is still around the US93 cent mark.
It is not just the State Budget in trouble.
The Bureau of Resources and Energy Economics, which provides key forecasts to the Federal Government, had anticipated iron ore to average $US104 a tonne this year before stepping down to $US97 a tonne through 2015.
Treasurer Joe Hockey admitted yesterday the slide in iron ore prices would have an impact on the overall Budget.
Iron ore shipments out of Port Hedland to China reached a record high last month on the back of strong production.
Total shipments to China hit 32 million tonnes in August. It was a 4.6 per cent increase over July and a 43 per cent jump on August last year.
Many analysts are tipping iron ore prices to slip even further. This week CLSA Ltd said it expected the mineral to fall to US75 a tonne by next year.
That forecast is in line with Goldman Sachs’ forecast earlier this year.
Yesterday’s drop in prices hit the sharemarket with BC Iron in particular hit hard. Its share price dropped by 6.1 per cent
BHP Billiton lost 1.9 per cent, Fortescue Metals slipped by 2.4 per cent and Rio Tinto dropped by one per cent.