Treasurer Ben Wyatt calls end to WA’s iron ore price bonanza as Brazil’s Vale steps up supply after dam collapse setbacks

Treasurer Ben Wyatt has predicted WA’s short-lived iron ore bonanza is drawing to a rapid end with the spot price for the key commodity on track to fall back in line with the State Budget’s predicted $US73.50 a tonne.

The world’s biggest iron ore producer Vale was forced to close several of its mines in Brazil following dam collapses earlier this year, sparking a surge in prices that peaked at $US121/t in July.

The spot price today has fallen back closer to $US93/t and Mr Wyatt believes further falls are on the way.

“You look at the futures contracts, it is expected to decline over the next couple of years quite rapidly,” Mr Wyatt said.

“Ultimately we are now driven by uncertainty in global trade but also the fact that Brazil is bringing on supply much quicker than we thought.

“That is obviously going to put downward pressure on iron ore.”

Mr Wyatt said the volatility in the iron ore price – and the associated royalties returned to WA each year – highlighted the importance of conservative budgeting.

“Any Budget that is based on the upside of a volatile price is a dangerous Budget,” he said.

“That is why we have budgeted very, very conservatively. And even with short-term increases we haven’t gone about just assuming it is here to stay and spending it accordingly.”

Dalian iron ore futures have now slumped to a two-month low, extending losses to an eighth session, amid worries of weak demand as China’s top steel-producing province of Hebei prepares to tighten emission requirements.

The most-traded iron ore contract on the Dalian Commodity Exchange, for January 2020 delivery, dropped as much as 5.6 per cent to 609.50 yuan ($US86.31/t) — the lowest since June 11.

The contract had closed down 3.8 per cent on Friday, logging the biggest weekly drop in more than 16 months.

China’s Hebei province, which surrounds the capital Beijing, has summoned the leaders of three cities after they failed to “meet public expectations” on controlling air pollution.

The province is set to impose tougher emission requirements on its industrial firms this year, according to the local environmental protection agency.

“All eyes will be on factory data out of China for any further signs of weakness amid the ongoing trade conflict with the US,” ANZ Research said in a note.