Australia warns of $2b budget hole due to iron ore slump

Australia’s Treasury has cautioned about a potential three billion Australian dollar ($2 billion) budget shortfall due to a sharp decline in iron ore prices, which have dropped 38 per cent this year and 7.5 per cent in the past week to $81.80 per ton.

Treasurer Jim Chalmers highlighted the concern over China’s economy and the impact on Australia’s most valuable export. If iron ore prices continue to fall, tax receipts could fall by AU$3 billion, creating budget challenges for the country.

This comes as the government already anticipates a deficit of AU$28.3 billion for the current fiscal year.

Australia shipped AU$138 billion worth of iron ore in the past fiscal year, with 85 per cent of this exported to China.

Major Australian iron ore producers, including BHP, Rio Tinto, and Fortescue, have seen their share prices decline significantly in recent months. While these companies are relatively efficient, the overall sector is facing a challenging period.

Analysts will be closely watching China’s purchasing managers’ index (PMI) for further clues about the health of the Chinese economy and the potential impact on iron ore demand.

Attribution: The Nikkei Asia

Subediting: M. S. Salama