Iron ore price tumbles below $US55 a tonne level forecast in budget

The iron ore price has tumbled below the $US55 a tonne mark for the first time in three months.

A haul truck is loaded by a digger with material from the pit at Rio Tinto Group's West Angelas iron ore mine in the Pilbara. (Ian Waldie/Bloomberg)

The iron ore price has skidded below budget forecasts for the first time in three months, continuing a downward trajectory that could come as a blow to federal tax revenues if sustained.

Iron ore shed 0.9 per cent to $US54.50 a tonne overnight, according to The Steel Index, from $US55 in the previous session.

The commodity has now lost 12 per cent since reaching a three-and-a-half month peak of $US61.80 a tonne in mid-August, a level many analysts and mining companies saw as unsustainable.

Its three-month stretch above the Budget estimate of $US55 was a positive for Canberra, given the forecast was seen as optimistic, but federal revenues are sensitive to any sustained decline.

A $US10 a tonne drop in the price would wipe out $1.4 billion a year in tax revenue, the government estimates, and most analysts are predicting further falls from current levels, into the low $US50s or $US40s. Goldman Sachs is among the most bearish, calling a 2017 price of $US36.

By contrast, JP Morgan analysts are among the most bullish, and this week reaffirmed a forecast of $US54 a tonne for the commodity over 2017.

“Chinese steel demand indicators remain buoyant in August, although the seasonal slowdown into year end is becoming apparent,” JP Morgan said in a research note, citing Chinese steel production of 807 million tonnes per annum in the month, up from a 787Mtpa rate in July.

Property prices are still improving, infrastructure investment is “buoyant” and the official purchasing manager’s index remained in positive territory in September, JP Morgan said. “Overall, we continue to believe the data are supportive of our +1.5 per cent year on year Chinese steel production growth for 2017.”

The bank noted a rise in exports from Port Hedland and Brazil in August, which remains below 2015 highs, as well as the recent strength in the commodity’s price which has seen some rival forecasts scramble to upwardly revise their near-term predictions.

In London trade, BHP Billiton shares added 0.3 per cent, while Rio Tinto rose 0.8 per cent.