JOHANNESBURG (miningweekly.com) – Australia, the world’s largest iron-ore exporter, has lowered its price forecast for the steelmaking ingredient for 2016 and 2017, citing "broadly unchanged" fundamentals of slow demand growth and a well-supplied market.

In its latest quarterly update, the Office of the Chief Economist in the Department of Industry, Innovation and Science reported on Friday that, despite the large movements in the iron-ore price in the first half of 2016, prices were expected to recover more slowly than previously forecast.

The spot price for a tonne of iron-ore (free-on-board Australia) traded as low as $40/t and as high as $66/t between February and April this year, and averaged at $48/t in the first six months of 2016.

However, the Chief Economist expected iron-ore to average $44.2/t in 2016, compared with a March forecast of $45/t. A significant revision was made for 2017’s forecast, with the iron-ore price now expected to reach only $44.8/t next year, compared with the March quarter’s forecast of $56/t.

“The revision is based on the assumption that loss-making operations may continue to produce for longer than previously expected. It also factors in increased supply from India and additional cost savings reported by iron-ore producers,” Chief Economist Mark Cully’s quarterly update stated.

The forecast weakness in iron-ore prices was expected to put downward pressure on Australia’s iron-ore export earnings, despite robust growth in volumes. In 2015/16, the value of Australia’s iron-ore exports was estimated to have declined by 10% to A$49-billion, owing to lower prices. Exports were forecast to remain at that level in 2017.

Australia was expected to report a significant increase on export volumes, with the country set to ship 852-million tonnes in 2016/17, from 748-million in 2014/15, as large mining operations continued to increase their global market share.

Australia was expected to increase its market share of world trade from 54% in 2015 to 58% in 2017, while Brazil’s share was forecast to increase from 26% in 2015 to 28% in 2017.

Australia’s iron-ore production would be supported by increased output from the new Roy Hill mine, which Hancock Prospecting owned, and further capacity expansions at the country’s largest producers, which have some of the lowest costs in the world.

Rio Tinto had not altered its forecast for global shipments for 2016, with the group expected to ship 350-million tonnes from its Australian and Canadian mines, while BHP Billiton had reduced its guidance for its Western Australian operations by 10-million tonnes to 260-million tonnes.

Australia’s largest iron-ore operations were low cost and were expected to remain competitive at prices below $50/t 2017.

In Brazil, Vale had indicated that its production would be at the lower end of its guidance of between 340-million tonnes and 350-million tonnes in 2016.

The Office of the Chief Economist forecast that India would become the world’s third-largest iron-ore producer in 2017, but that its production would still be about 25% lower than what it was at its peak in 2009.

The country was not expected to be a net exporter of iron-ore over the next 18 months, as mines were relatively high-cost and small operations.