Iron ore price dips to within a whisker of $US55 a tonne

The iron ore price continues to trend lower and is now just a smidgen above the budget estimate of $US55 a tonne.

A Valemax carries iron ore from Brazil to China.

The iron ore price has slipped further and is a hair above the May Budget’s estimate of $US55 a tonne, as the commodity continues to cool from levels that were widely viewed as unsustainable.

Iron ore lost 0.2 per cent to $US55.10 overnight, according to The Steel Index, from $US55.20 the previous day.

The steelmaking ingredient has fallen 17 per cent since reaching an August peak of $US61.80, but its extended rally and delayed decline have forced many analysts to adjust their price assumptions.

Goldman Sachs last week upwardly revised its iron ore price estimate for 2016 to $US51 a tonne, slightly above a prior forecast of $US50. The modest upgrade shows that the bank still expects further falls in the near term.

Goldman is tipping a sharp drop for the commodity next year, affirming a prior forecast of $US36 a tonne for 2017. This prediction makes Goldman analysts among the most bearish on the key export’s prospects.

For 2018, 2019 and the long term, the bank is predicting iron ore to hold at just $US35 a tonne, a level which would make all but the leanest miners uncompetitive.

An iron ore price in the mid-$US30s would also put pressure on government revenue. This year’s budget predicted an average iron ore price of $US55 over the coming year, which was seen as overly optimistic, although the commodity has now managed to hold above this threshold for three months running.

But thebBudget papers assume that a $US10 a tonne fall would wipe out $1.4 billion in tax revenue, meaning a drop to $US35 could cause a $2.8bn hit to federal coffers.

In London trade, BHP Billiton shares rose 1.8 per cent, while Rio Tinto added 1.2 per cent.