Australia’s Iron-Ore Pain Deepens – by Rhiannon Hoyle (Wall Street Journal – June 30, 2015)

Larger-than-expected drop in export income will make Tony Abbott’s promised balanced budget tougher to deliver

SYDNEY—The plunge in iron-ore prices since early last year is hitting Australia’s economy harder than expected, making it tougher for the almost two-year-old conservative government to meet its campaign pledge to balance the budget quickly.

Just three months ago, Prime Minister Tony Abbott’s government forecast that income from resource exports overall in the year ending June 30 would be down 8%, to 179 billion Australian dollars (US$137 billion). On Tuesday, it estimated earnings from exports of iron ore and other raw materials to China, Japan and elsewhere actually slid 11%, to A$174 billion.

The biggest driver of the estimated fall in income is a 27% drop in earnings from exports of iron ore, a steelmaking ingredient that is Australia’s top export, shipped mainly to China.

“Iron-ore export volumes are strong, but declining prices have certainly hit the bottom line,” said Diana Mousina, an economist at the Commonwealth Bank of Australia. The relentless drop has forced Mr. Abbott’s government to redraw budget forecasts a number of times already.

So important is iron ore to the nation’s economy that lawmakers briefly considered a special parliamentary inquiry into the price falls—following allegations that some of the bigger producers were squeezing prices to flush out smaller rivals.

Mining giants such as BHP Billiton Ltd. and Rio Tinto PLC have denied any squeeze, and argued successfully against an inquiry, saying it risked creating market uncertainty that could lead Asian buyers to seek out other suppliers.

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