Iron ore slips below $US70/t
The Federal and WA Budgets have taken a fresh blow with iron ore prices slipping to a fresh five-year low of less than $US70 a tonne.
Overnight, iron ore slipped to $US69.58 a tonne on the back of falling weakness in China's property market.
Prices have tumbled by 47 per cent this year.
So far this financial year prices have averaged below $US85 a tonne, well short of the WA Treasury forecast of $US122.70. If the trend continues it will blow a $2 billion hole in the WA Budget.
The Federal Budget is also facing a revenue shortfall with miners such as BHP-Billiton and Rio Tinto among the country's largest taxpayers.
Mid-year updates from both WA Treasurer Mike Nahan and his federal counterpart, Joe Hockey, due out next month are expected to reveal the depths of the revenue troubles caused by the falling iron ore price.
ANZ senior economist Felicity Emmett said continuing concerns about the state of the Chinese economy was weighing on iron ore.
While there had been a lift in equity markets this week because of a cut in official Chinese interest rates, that would not be enough.
"The excitement of the rate cut has faded from earlier in the week amid continued failure of supply-side discipline and lacklustre pick-up in seasonal demand from steel mill restocking," she said.
IG market strategist Evan Lucas said prices would likely fall further.
"I'm expecting it to continue to fall because we continue to see mass overproduction," he told Australian Associated Press.
Mr Lucas said small iron ore miners, which have higher costs of production than major producers, would also face more pressure.
"The junior miners are going to have a lot of pressure coming on them," he said.
Even major producers are under share price pressure. Shares in Fortescue Metals Group were trading yesterday at $2.80 after climbing above $6 in February.
