Australia paints dire picture of iron ore prices in 2018 forecasting a 20% slump

The Australian government has painted a bleak picture of the iron ore mining industry's prospects in 2018, on account of lower demand from China.

In its latest assessment of the global iron ore market, considered a major revenue earner for Australia, the country's government said Monday (8 January) that it expects iron ore prices to average $51.50 per tonne this year; down 20% from 2017.

It attributed the slump in prices to rising global oversupply and a lower appetite from its leading importer – China.

The forecast is well below average City of London projections in the range of $63-65 per tonne, which are largely flat on the 2017 average mark of $64.30.

"The iron ore price is expected to experience some ongoing volatility in early 2018, as the market responds to uncertainty regarding the impact of winter production restrictions on iron ore demand," the Australian government outlook paper warned further.

Iron ore last traded at such low levels forecast by Canberra back in the second quarter of 2017, when prices slumped to $52 per tonne in China at one point in June.

What's more the Australian government has predicted the decline would accelerate in 2019, when iron ore prices will average an even lower $49 per tonne, as Beijing's imports of the steel manufacturing raw material slumps further.

China's President Xi Jinping said last year that fighting pollution was one of his country's main priorities through to 2020. Ageing steel plants are likely to be either shuttered or modernised, resulting in lower demand, all in the face of rising production from both Australia and Brazil.