In step with a dismal past 12 months in which falling commodity prices have impacted both mining investment and the Australian dollar, Treasurer Joe Hockey has warned that he may be forced to write-off $25bn in revenue for the next four years if iron ore prices continue to fall. The country’s leading export is trading currently at $47 a tonne, down from $120 in 2013, and, assuming that demand fails to pick up in the years ahead, could put major names in the mining industry out of business.
Both parties have faced heavy criticism in recent months for expanding iron ore production
In an interview with The Australia Financial Review, Hockey said that there seems to be “no floor” when it comes to setting iron ore prices, which have been falling at a quite spectacular rate of late and hampering wage growth. Whereas previously Hockey was balancing the books using a price of $60 a tonne, a Chinese slowdown means that the treasurer must now factor in prices as low as $35 in order to more realistically reflect the changed economic landscape.
If prices were to reach the $35 mark, major mining names BHP Billiton and Rio Tinto would make only $1 for every tonne sold, whereas the vast majority of smaller miners would be forced to operate at a loss. Both parties have faced heavy criticism in recent months for expanding iron ore production in a time where there is a supply glut. As a result, lesser-known names are struggling to stay in a market where high-cost production is king.
According to Hockey, for every $10 taken off the iron ore price, Australia’s economy will lose $2.5bn and exacerbate the problems facing an economy already posting weaker-than-expected growth.
