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Australia set to feel impact of iron ore price drop

Iron ore prices fell by 4.5% on Tuesday 17 November. 


State governments and mining companies in Australia are set to feel the impact of a fresh drop in the price of iron ore.


Following a few months of stability, the price of the commodity dropped by 4.5% on Tuesday 17 November to USD 45.50 (GBP 29.92; AUD 64.11) per tonne.


One of the factors in the sudden fall was a reduction in steel demand from China.


Speaking to ABC News, Romano Sala Tenna from Katana Asset Management said the market has seen that not only have steel production forecasts failed to materialise, but supply has actually fallen.


"Year-on-year, pretty much every month in 2015, we've seen a decline in steel production versus the previous corresponding period, and that of course is flowing through to the iron ore price," he explained.


With the Roy Hill iron ore mine in Western Australia due to come online soon, Mr Sala Tenna said it "was hard to make a case" for prices advancing much higher, irrespective of some fluctuations in the short term.


"The previous thought was USD 70, USD 80, USD 90 was the normal level it would settle at," he added. "I think we're now seeing that level substantially lower … at around the USD 50, USD 60-a-tonne market."


Mr Sala Tenna said some Australian producers could remain profitable if they have help from forex rates.


Western Australia's state treasurer Mike Nahan stressed that iron ore output is "not at risk", but warned that the lower price will have an impact on the regional government's budget.


He also pointed out that the price slump did not come as a surprise, with the market having expected it for a while.

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