Budget 2022: Bleak forecasts on iron ore and coal prices ahead of curve
Treasury predicts a drastic fall in commodity prices next year, in defiance of market analysts.
Treasury has forecast a drastic fall in commodity prices at the back end of the financial year, tipping iron ore and coal will return to long-run pricing levels years ahead of market predictions.
Budget figures predict a $US330 a tonne fall in the price of thermal coal by the end of next March, to levels around $US60 a tonne — a view not shared by many analysts.
Treasury projections also suggest coking coal prices will slide to about $US130 a tonne from $US270, with iron ore prices tipped to fall by 36 per cent to $US55 a tonne at the port. Liquefied natural gas prices will fall by almost a third to $US630 a tonne.
The projections defy the energy crisis sparked by Russia’s invasion of Ukraine that is pushing up the price of fossil fuels ahead of the northern hemisphere winter, and is expected to ripple through global energy markets for years.
They also put Treasury at odds with the majority of market analysts, and all-but ensure Treasurer Jim Chalmers can bake in more than $8bn in additional corporate taxes over the forward estimates when he delivers his next budget in May.
Treasury’s outlook for thermal coal prices sits more than $US265 a tonne below those of Commonwealth Bank analysts, who said on Monday they expected it to be selling for an average $US325 in the March quarter, and remain strong for some years given bans on Russian coal being imposed in Europe, Japan and South Korea. “High-energy Australian coal that can replace Russian coal is likely to benefit especially in the near term,” CBA said in a note to clients.
Given the global energy crisis, CBA analysts do not expect thermal coal prices to fall below $US100 a tonne until late 2025.
And although most analysts are predicting a falling iron ore price on the back of weakness in the Chinese economy, CBA forecasts suggest the falls over the next six months will be closer to around 15 per cent.
Treasury figures are have traditionally been far more conservative than market predictions, and the budget papers note their assumptions for the coming year are based around a prediction n assumption of when prices will return to long term levels. And The budget papers also note events suggest there could be “substantial upside risks” to their estimates. “In light of the ongoing Russian invasion of Ukraine, there is substantial upside risk to the thermal coal and LNG price assumptions, while China’s weakening growth outlook presents a downside risk for commodity prices, particularly iron ore,” they say.
But the vast gulf between Treasury and market estimates suggest Mr Chalmers is likely to receive far greater revenue from corporate taxes than is currently factored into the forward estimates. Sensitivity analysis published as part of the budget papers suggests that, if the steep dive back to long run pricing is delayed by just six months — with even that considered unlikely by analysts — the Australian Taxation Office will take in an $9bn by the end of the 2025 financial year.