The rebound in commodity prices in 2016 drove a sharp rise in iron ore and coking coal prices, boosting profits for mining companies worldwide. However, the Australian government—Australia being the world’s largest exporter of raw materials—now believes that the rebound in commodity prices is set to peak in 2017.

　　Driven by China’s stimulus measures, steel production has surged, and with supply constrained in some markets, commodity prices—which had been declining—will record their first annual increase in six years in 2016.

　　However, in its latest quarterly report released on Monday (January 9), Australia’s Department of Industry, Innovation and Science said that, as low-cost supply increases and demand prospects become more subdued, iron ore prices are set to plunge over the next two years, falling significantly below current levels.

　　The report argues that, given the shrinking demand for residential construction in China and the possibility that disruptions to coal supplies may be temporary, prices of steelmaking raw materials such as iron ore and coking coal are likely to decline. Additionally, the report notes that it remains uncertain whether the policies of U.S. President-elect Donald Trump will have a positive impact on demand.

　　The report shows that Australia’s Department of Industry forecasts an average iron ore price of US$51.60 per ton in 2017 and US$46.70 per ton in 2018. Currently, the price of iron ore stands at around US$80—a figure twice as high as it was a year ago. Earlier, the department had projected an average price of US$44.10 for 2016.

　　The department pointed out that the current rise in iron ore prices is driven by a temporary increase in Chinese steel production and speculative trading on Chinese commodity exchanges. However, since these factors are likely to weaken over the outlook period, iron ore prices are still expected to decline.

　　In addition, Australia’s Department of Industry has lowered its forecast for iron ore exports for the 2016-17 fiscal year by 2%, from the previously projected 851 million tons to 832.2 million tons. However, even after the downward revision, the forecast still represents a 5.9% increase over the previous year’s level. Australia is the world’s largest exporter of iron ore.