Iron Ore Price Fall To Hit WA Royalties

A sharp fall in iron ore prices is expected to slash Western Australia's royalties in 2009/10.

WA treasurer Troy Buswell on Thursday handed down his first budget since the Colin Barnett-led Liberal Party came to power last year.

He predicted a 30 per cent plunge in iron ore prices and softer prices for other commodities in the new financial year.

Royalty income in 2008/09 is estimated to have grown by 59 per cent, mainly due to an 85 per cent hike in iron ore contract prices for most of the period.

For the remainder of this year, however, royalties are tipped to decline by $362 million, largely reflecting the impact of an assumed fall in iron ore prices combined with lower production volumes and a higher Australian dollar exchange rate against the US dollar.

Annual contract, or benchmark, iron ore prices negotiations are based around the Japanese financial year, which began on April 1, but current talks are continuing and should be resolved by mid-year.

Analysts say the iron ore price decline could be between 25 and 40 per cent.

WA's royalty income is expected to fall by 3.7 per cent in 2009/10 due to the iron ore price dip, which will counter a continued expansion in the state's iron ore output.

From 2010/11 onwards, however, royalty income is projected to grow at 3.7 per cent, largely due to greater iron ore production volumes.

Mr Buswell also announced a record $8.3 billion in spending on infrastructure in 2009/10 or $23.8 billion over four years.

Of this years' spend, $377 million has been allocated to expanding ports at Fremantle and at the iron ore export hub of Port Hedland.

The new multi-user facility under development at Utah Point at Port Hedland will be used by the growing mid-tier and junior iron ore sector, which will also benefit from the proposed $4 billion Oakajee port near Geraldton.

While both the federal and state governments have each committed $339 million towards Oakajee, no funds have been allocated toward the project in the WA 2009/10 budget.

The state government has also not earmarked any funds in 2009/10 for a liquefied natural gas (LNG) processing hub at James Price Point near Broome or Chevron's Gorgon LNG project on Barrow Island.

However, $35 million will be put towards the Australia Marine Complex near Fremantle, which trains companies that support the oil and gas sector.

The WA government expects an operating surplus of $647 million this financial year, down from $2.5 billion in 2007/08.

An operating surplus of $409 million is projected for the forthcoming fiscal year but the state's balance sheet will go into the red by $513 million in 2011/12.

Source: The Age, Melbourne