Australia lowers iron ore price forecast as China outlook softens

 Leading global producer Australia on Tuesday lowered its forecast for iron ore prices as Chinese steel production eases, but said export volumes were expected to grow as suppliers ramp up output.

The price was forecast to fall to US$54.40 a tonne for this year and slip to US$52.10 in 2016 as China's output of steel, of which the commodity is a key ingredient, weakens, Australia's Department of Industry and Science said in a quarterly report.

"China's steel production is forecast to contract in 2015 and 2016 as the seaborne supply of iron ore increases," the report said.

"These factors are forecast to drive the price of iron ore down 38 percent in 2015... and a further 4.2 percent in 2016."

Australia's revenue has taken a hit as the price of ore, its largest export, dived by 60 percent over the past year to reach a decade low of US$47.08 per tonne in early April. It is currently about US$60 a tonne.

Increased supply by miners such as BHP Billiton and Rio Tinto as well as softer growth in Chinese demand have been blamed for the tumbling ore price, which has intensified pressure on smaller miners with higher production costs.

The latest forecasts are down from the US$60.40 a tonne and US$56.80 a tonne projections in the department's March quarterly outlook.

"Housing construction in China remains a key area of uncertainty," the report said.

"Although residential construction is forecast to remain moribund through 2015 and into 2016 a rebound in activity could significantly boost domestic steel consumption and demand for seaborne iron ore."

China's property sector has been a key part of the nation's economic boom in recent years, driving demand for materials such as steel.

The department said Australia's iron ore exports were forecast to increase by four percent this year to 748 tonnes as suppliers ramp up output from the Pilbara in Western Australia.

Supply is also expected to be boosted by initial production from Hancock Prospecting's massive Roy Hill mine.

Exports of the commodity from Australia were projected to jump by 10 percent in 2016 to 824 tonnes, the report added.

Brazil's iron ore exports were forecast to rise by seven percent this year to 390 tonnes amid infrastructure expansions and increased production.

But exports from countries such as South Africa, Ukraine and Canada were expected to fall in the short-term as infrastructure constraints, lower-grade ore and declining prices hit profitability.

Australia's iron ore exports account for 60 percent of the world's seaborne supply.