Australia's commodity forecaster predicts iron ore will fetch less than $US95 per tonne over the next five years as the big miners continue to boost supply.
The Bureau of Resources and Energy Economics (BREE) has also cut its price forecast for next year as the steel-making ingredient trades at a five year low.
In its September quarter report BREE said Australia's biggest commodity export would average $US94 a tonne in 2015, down from $US97 in the previous quarter.
Iron ore prices have tumbled by nearly 40 per cent since January and now sit below $US80 a tonne amid a slowdown in demand from Chinese steelmakers and higher production levels in Australia.
BREE predicts the value of iron ore exports will fall by four per cent in 2014/15, with volumes up 13 per cent.
"The iron ore price is forecast to rebound from current low levels, but the average price for 2015 is forecast to average US$94 and not return the levels seen in early 2014," BREE said.
"Further increases in supply indicate increasing price competition will be needed to push more high cost supply out of the market over the next two years."
Over the next five years, BREE said iron ore prices would average between $US90 and $US95 a tonne.
Price falls are expected to push down the overall value of Australian commodity exports for the 2014/15 financial year, despite a pickup in volumes shipped overseas.
BREE expects earnings from those exports to fall one per cent to $192 billion this financial year, with earnings from iron ore forecast to drop four per cent.
The recent fall in iron ore prices is beginning to hurt some of the nation's smaller, high-cost producers such as Atlas Iron, Arrium, BC Iron and Gindalbie whose break-even costs are above $US80 per tonne, according to UBS estimates.
BREE also said high cost Chinese iron ore miners would delay any decisions to close mines given the costs associated with placing operations on care and maintenance.
IG market analyst Evan Lucas said at current prices, iron ore miners such as Arrium, Mount Gibson and BC Iron had little room to move.
"The key risk for materials is if the biggest scalp in the pure iron ore space, Fortescue Metals Group goes under water," he said.
With costs estimated at US$77 a tonne, the company had "$2.10 to play with".
The BREE report predicts Australian economic growth to moderate to 2.5 per cent in 2014/15, from 3.1 per cent last financial year, as capital investment falls and the dollar remains high.
The challenges would persist into this financial year and contribute to a forecast moderation in economic growth.
Meanwhile, the Coal, Minerals Council of Australia said the BREE report confirmed that coal was not in terminal decline after it forecast coal exports will add $53 billion to national income in 2018/19 amid increases in thermal coal and metallurgical coal volumes.
Share
