The state budget assumes iron ore prices will average about $US47.70 a tonne in the coming financial year, substantially higher that what most forecasters have been tipping, and also includes a $41 million royalty concession for magnetite producers.
The iron ore price is based on the spot price of the steelmaking commodity on the Singaporean market, combined with the wider market forecast consensus to produce an average outlook.
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Based on this methodology, the state government also expects the iron ore price to improve slightly over the coming financial years – increasing from $49.20 in FY18 to $54/t by FY20.
The iron ore price hit $US55.57/t overnight.
The gradual average iron ore price increase coincides with the state government’s prediction that iron ore volumes will also increase, up from the forecast 782 million tonnes in FY17 to 817mt by FY20.
It also coincides with the forecast decline in the Australian dollar, from US75.70 cents expected in FY17 to US73 cents by FY20.
The state government also expects the crude oil price to increase by about $US3 a barrel to $US44.40 in the coming financial year, and reach $US50.90 per barrel by FY20.
In the 2016-17 budget released today, the state government has also introduced a 50 per cent royalty payment rebate for magnetite projects, which is expected to save producers up to $41 million over three years.
The Magnetite Financial Assistance Program would be a welcome relief for Western Australia's only magnetite producers – Citic Group, which operates the Sino Iron project in the Pilbara, and Gindalbie Metals and Ansteel, which jointly own the Karara project east of Geraldton.
The state government last year introduced a royalty relief program that allowed iron ore miners to defer half of their annual royalty payments, providing the iron ore price stayed below $US90/t.
