Australia projects fall in iron ore price Iron ore prices will fall to $90 a tonne over the next five years as demand for the steel-making ingredient wanes and a wave of new supply hits the market, Australia's official commodities forecasting agency has predicted. "The decline in prices is expected in response to moderating demand particularly in China, and substantial supply increases from mining projects that are already under construction," the Bureau of Resource and Energy Economics said in its closely watched quarterly report published on Wednesday. The price of iron ore is critical to the global economy because it feeds through into the price of steel and goods such as cars and washing machines. It is also key to the profitability of large mining groups as well as steelmakers, including ArcelorMittal and Baosteel of China. Rio Tinto, BHP Billiton and Fortescue Metals Group, respectively the world's second-, third- and fourth-biggest iron ore miners, are all aggressively expanding production. By 2015 they expect to add 235 tonnes of mine capacity - equal to around half of Australia's entire iron ore production last year. But analysts are increasingly worried that the seaborne iron ore market will soon be in oversupply as output increases from Australia - the world's biggest exporter of iron ore - and demand from China slows. The price of the steel-making ingredient hit a two-and-half month low of $132.90 a tonne last week as Chinese steelmakers, the largest source of demand globally, backed away from the market amid signs of weakness in end demand. Earlier this week, Goldman Sachs lowered its 2015 forecast to $80 a tonne, as Chinese demand for imported iron ore slows due to the growing role of scrap in steel production and continued investment in domestic iron ore mines. "The iron ore industry has responded to a year of high iron ore prices by investing in new production but we argue that future demand will not be enough to absorb it," Goldman said. In its report, BREE forecast average spot and contract prices of $119 a tonne in 2013 and $90 by 2018. It said Australian iron ore exports would increase 12 per cent this year to 554m tonnes due to higher output at Rio and BHP mines and the "ramp-up" of production at Fortescue's expansion projects in Western Australia. Overall, BREE projects Australian iron ore exports will increase at an average annual rate of 8 per cent a year between 2014 and 2018, when output will hit 831m tonnes. Most of the big miners expect the iron ore price to decline in coming quarters as new supply hits the market, projecting prices to average around $120 a tonne this year. But they do not believe there will be a dramatic collapse in prices, arguing that not all the forecast supply will materialise and that China's urbanisation will continue to drive steel demand. Greg Lilleyman, a senior iron ore executive at Rio, told an industry conference in Perth this week that companies with greenfield iron ore projects would face significant challenges bringing them into production as prices dropped back to historical averages. Rio also estimates China's crude steel consumption will peak at around 1bn tonnes towards 2030 - a 50 per cent increase on current levels.