Iron Ore Prices Rise In Windfall For Government Which Could Bank $750 Million Royalty Windfall

The commodity's spot price, which is calculated in US dollars, has risen almost 13 per cent over the past year.

The rise is even more significant in Australian dollar terms because the dollar has fallen against the greenback.

It is in stark contrast to this time last year when iron ore prices slumped, punching a massive hole in the budget.

Iron ore consultant Philip Kirchlechner says strong demand for iron ore from Chinese steel mills is helping keep the price high.

"Daily steel production in China was almost 2.2 million tonnes per day which was the second highest this year and annualised would be about 800 million tonnes," he said.

"That compares to steel production last year in China of 720 million tonnes so it's a huge increase in steel production."

Premier Colin Barnett says it is good news.

"The stronger the iron ore price, the stronger any mineral price and the lower the Australian dollar, the better it is for the bottom line and the outcome of the state budget so certainly this helps our budget," he said.

Mr Kirchlechner says despite the rise, the government must be prepared for more volatility.

"It's really driven by the inventory levels in China's supply chain and that's really amplified by the size of the economy," he said.

"Because of such a large amount of steel production there's easily an under and over shooting and therefore prices just keep going up and down."

Source:- abc.net.au