15/12/2014 – Australia Sees Iron-Ore at $60 as Commodities Hit Budget

Australia estimates iron ore will trade at about $60 a metric ton as the biggest slump in the nation’s terms of trade since records began more than 50 years ago deepens the budget deficit.

The price of the material used to make steel has almost halved this year and slumped to a five-year low of $68.49 a ton last month, according to data compiled by Metal Bulletin Ltd. That compares with a $92 projection in the budget, Treasurer Joe Hockey told reporters yesterday.

“We are forecasting that it’ll remain around $60 a ton for the foreseeable future,” Hockey said in Sydney. The decline in the price of iron ore “has had a big impact on the budget, as had a 15 percent fall in thermal coal and 20 percent fall in wheat prices,” he said.

Australia will deepen cuts to the civil service and axe agencies in search of savings as the mid-year economic and fiscal outlook today will show a wider budget deficit than initially projected. The deficit for the 12 months through June 2015 will widen to A$37 billion, according to the median estimate of 13 economists surveyed by Bloomberg News, from the A$29.8 billion gap forecast at the time of the May budget.

Government revenue will be A$7 billion lower this fiscal year than the level forecast in May, while the nation’s estimated growth will be unchanged, the update will show, the Australian Financial Review reported today, without saying where it obtained the information.

Finance Minister Mathias Cormann said The price of iron ore accounts for 20 percent of export income, slid to a five-year low last month.

Iron ore accounts for about 20 percent of the nations export income, according to Finance Minister Mathias Cormann. It may fall to less than $60 a ton next year as the largest mining companies press on with expanding supply, deepening a glut just as demand growth in China falters, according to Roubini Global Economics LLC.

Ore Glut

Ore with 62 percent content delivered to Qingdao, China, dropped 3.9 percent to $68.99 a dry metric ton last week, data compiled by Metal Bulletin Ltd. showed. The Australian dollar has fallen more than 10 percent since the start of September as the price of the steel-making material declined.

“What is happening with commodity prices is challenging,” Cormann said in an interview on Sky News at the weekend. “The overwhelming objective here is to ensure that we streamline the operation of the public service. If you reduce the number of government bodies, there will be an impact on jobs.”

The nation’s employers added 42,700 jobs in November, the most in more than two years and almost three times economists’ forecasts, government data showed last week. The jobless rate was 6.3 percent, up from 5.8 percent a year earlier.

Australia’s terms of trade have seen the biggest decline since records were first kept in 1959, Hockey said yesterday.

Source – Bloomberg.com