The Australian government forecasts iron ore fob export prices to fall to around $55/t by the end of the 2020-21 fiscal year to 30 June, which is well below the current key Argus assessment for iron ore deliveries to China.

The Argus ICX seaborne fines price for 62pc Fe ore delivered to China was last assessed at $123.05/t cfr Qingdao. The cfr price includes freight costs but still marks a significant premium to the $55/t price assumption in Australia’s budget papers.

The expected fall in iron ore prices is expected to have an impact on Australia’s trade position, as iron ore is the country’s largest single export earner. Its exports account for around 20pc of the country’s gross domestic product (GDP). China buys around 80pc of Australia’s iron ore exports.

“The increase in nominal GDP growth in 2021-22 is not expected to be as strong as the recovery in real GDP growth in that year,” the Australian treasury said in the 2020-21 budget papers. “This reflects a fall in the terms of trade as iron ore prices are assumed to decline to $55/t fob by the end of the June quarter 2021.”

The treasury iron ore price assumptions for the end of 2020-21 are below that provided last month by the Australian government’s commodity forecaster The Office of the Chief Economist, which had nominal iron ore export prices based on 62pc Fe at an average of $71/t in calendar 2021 and falling to $64.80/t in 2022.

The expected fall in iron ore export prices by the end of June 2021 is two quarters later than was assumed in the July treasury update. “Some market and industry participants have highlighted a risk that iron ore prices could remain high for an even longer period of time,” it said.

Canberra is also assuming a further growth in resource investment in 2020-21 over 2019-20 driven largely by iron ore projects in Western Australia. This echoes the view of the Reserve Bank of Australia that also forecast iron ore projects to underpin a rise in resource investment.

Capital expenditure across Australia’s resources sector increased in 2019-20 from a year earlier, marking the first rise in spending in a fiscal year since 2012-13. This was led by increased expenditure on iron ore and other minerals, as well as on coal mining development.

Mining investment rose for the first time in seven years in 2019-20 and is expected to increase by a further 5.5pc in 2020-21, the budget papers said. But mining investment growth is forecast to be weaker at 1.5pc in 2021-22. Global uncertainty and lower demand for some commodities have led to deferrals of investment for new and existing projects for other major commodity exports, it said.

Mining exports are expected to rise by 0.5pc in 2020-21 and 4pc in 2021-22, supported by robust demand for iron ore from China, and a gradual recovery in other key export partners as Covid-19 restrictions ease and industrial production recovers.

Australia reported record receipts for bulk commodity energy and mineral exports in 2019-20, boosted by higher iron ore volumes and prices.