Australia increased its average iron ore forecast for 2016. The country now expects the price to be at $48.50 a tonne, up from its previous forecast of $44.20 a tonne. 

Increased demand from China has been cited as the leading reason behind the rosier forecast.

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Australia also raised its forecast for metallurgical coal price from $85.60 a tonne to $99.40 per tonne. However, these forecasts are below the current market prices.

According to the latest quarterly outlook released by the Department of Industry, Innovation and Science, the upward revision is due to the robustness of the Chinese construction segment, which is being benefited by various measures taken by the government to boost home sales. The stimuli are aimed to bring down the inventories and limit the onset of economic sluggishness.

Mark Cully, the department's chief economist, said the prices of raw materials in making most construction and steel showed continuous growth in the past three months. While the markets were expecting the prices to decline, "unexpected resilient demand" from the Chinese construction sector and unexpected supply bottlenecks caused them to spike instead.

In the meantime, Australia likewise echoed some worry as it noted that the Chinese residential property market faces supply glut. It specifically cited the inventories which experienced moderate draw down in the first half of the year.

Australia further stated that there might be some decline in demand for coking coal and iron ore as the Chinese government tries to control excess capacity in its steel production. China is taking steps to control overcapacity in coal sector as well. 

TagsAustralia, china, Iron Ore