President-elect Donald Trump’s policies could boost WA’s iron ore royalties, economist predicts

Donald Trump’s second term could mean WA makes even more from its iron ore production, a leading economist has predicted. A sputtering Chinese economy has seen the price of the steel-making ingredient fluctuate wildly between $US89 and $US110 this year, with the mineral’s average price for 2024-25 currently sitting at $US101.14. Bank of America warned in September that the price of iron ore could tumble, reaching $US75 a tonne in 2025. According to WA treasury forecasts, every $US1 change in the iron ore price sees WA gain or lose $94m in royalties. The State Government, which under WA Labor has used conservative price assumptions, has budgeted for an iron ore price as low as $US71 per tonne. Some analysts have predicted the price could trend towards that figure as Chinese demand weakens, amid continued high levels of production. However, Chamber of Commerce and Industry WA chief economist Aaron Morey said he was “optimistic about the future” and did not expect the more “pessimistic scenarios” to eventuate. Australia sells its iron ore in US dollars. A stronger US dollar means WA coffers benefit as those dollars are converted into Australian currency, Mr Morey said. The economist said he predicted the policies of president-elect Trump were likely to be inflationary in America — thus leading to a higher US dollar. “He’s very likely to put up tariffs on goods coming into the US. He’s very likely to restrict migration. He’s very likely to have a strong spending agenda,” Mr Morey said. “All else equal, that’s going to be quite inflationary in the United States. That’s going to push up the US dollar. “Our State coffers benefit at the margin, because it’s a global market. We sell iron ore in US dollars and then we convert those US dollars back to Australian dollars.” The Commonwealth Bank also believes Trump’s policies will be inflationary and lead to a higher US dollar, but on Thursday warned a China-US trade war could have a negative impact on commodity prices. “A fall in commodity prices, particularly iron ore, would lower Australia’s terms of trade and lead to less export income. government revenue and corporate profits,” the bank said. Pushing back on fears a slowing Chinese economy could tank the price, Mr Morey said: “China is not everything”. “The incredible levels of investment that go into sectors like defence, automotive manufacturing and, most importantly, transmission infrastructure to underpin development of new renewable energy is going to be a significant tailwind for the iron ore sector,” he said. Mr Morey said markets such as India — which has ambitions to increase transmission infrastructure from $10b to $100b a year — were part of a “global picture” that would ensure prices of WA commodities, including iron ore, remained well above production costs. “We are in a really robust position currently in terms of where that iron ore price sits compared to costs,” he said. “There’s absolutely some challenges there in China’s market, but I think over the medium term, those tailwinds, those drivers of demand should really help to underpin that price. “There’s too much reindustrialisation, onshoring, friend-shoring, global shifts in terms of defence and geopolitical tensions, the shift towards renewables and decarbonisation more broadly . . . these are all tailwinds to our commodities.” Chamber of Minerals and Energy WA chief executive Rebecca Tomkinson said investment and innovation meant WA was one of the lowest-cost iron ore producers in the world — but warned this should not be taken for granted. “Maintaining competitiveness requires continuous investment in new mines that ensure WA’s extensive rail and port infrastructure is running at maximum capacity,” Ms Tomkinson said. “Timely and efficient approvals processes are one important piece of the puzzle. Another is an industrial relations system that ensures wage rises are tied to productivity gains.” Ms Tomkinson said the Albanese Government’s proposed Nature Positive legislation — currently stuck in the Senate — had resulted in a “lack of clarity” that was “scaring off global capital”. Mines Minister David Michael said the Government would like to see the price remain above $US100, but that they had planned for a price fall. “Our budget predicates an iron ore price in the 70s. So should it fall further, we have not over-committed ourselves,” Mr Michael said. “Having said that, if it remains where it is, then I think the producers in the State are still doing relatively well.”