The surge in iron ore prices could be short-lived, with the key steel-making ingredient forecast to retreat back to $US50 a tonne by the end of the year, according to research firm Capital Economics.
Iron ore, which sank to a decade-low of $US38 a tonne at the start of 2016, doubled in value during the year after stimulus measures in China boosted demand from its steel sector.
The price has continued to climb over the past two months, defying analyst expectations of a correction, and in February rose as high as $US95 a tonne.
But iron ore has been knocked back nearly 10 per cent since then, amid a broader decline in commodities prices as the US dollar strengthens on the expectations for an increase in interest rates.
The swift decline is being seen as a sign of the fragility in iron ore prices, given the slowing economic growth in its largest market - China.
"A slowdown in China would surely result in the prices of Australia's main commodity exports crashing back down to earth," Capital Economics' chief ANZ economist Paul Dales said in a note on Monday.
The research firm expects the iron ore price to slide back to $US50 a tonne, while thermal coal prices could ease to $US70 a tonne, from around the current $US80 a tonne.
"The coming slowdown in economic growth in China will mean this commodity price windfall won't last long," Mr Dales said.
"Indeed, the slowdown will mean that Chinese demand for commodities falls short of expectations, probably at the exact same time that the global supply of iron ore and coal increases."
Any actual fall, however, will have a significant impact on the finances of the federal and state governments, despite Canberra taking a conservative view on the price forecast for Australia's biggest export earner.
The federal government had forecast iron ore prices averaging $US68 a tonne until the end of June, but slipping to $US55 a tonne in the September quarter.
UBS Economics last week estimated that Canberra will earn a windfall of $10 billion a year - if iron ore prices remain at the current levels.
The additional commodities revenue may not improve the federal budget by itself, but could be used to fund the scrapping of savings measures that the government has been unable to get through Parliament, UBS said.
Meanwhile, the declining prices have already had an impact on shares in the big iron ore miners.
Over the past three weeks, shares in BHP Billiton, Rio Tinto and Fortescue Metals have fallen nearly 12, 15 and 13.5 per cent, respectively.
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