Corrects figure in second paragraph to A$500 million, not billion
Federal budget depends on strong tax revenue from iron ore miners
BHP CEO says miner and CMRG's views a bit wider apart than in previous years
MELBOURNE, Feb 24 (Reuters) - Australia is closely watching talks between iron ore majors and China's state-backed buyer because of the potential impact a lower ore price would have on the federal budget, the country's resources minister Madeleine King said on Tuesday.
Iron ore is Australia's highest earning commodity export and taxes paid by the mining majors are crucial to federal revenue. Treasury estimates show a $10 move in the iron ore price would impact tax receipts by A$500 million ($350 million) in the 2025-26 financial year.
China Minerals Resources Group (CMRG), the state iron ore buyer, is seeking to extract better terms for Chinese steel mills in the $132 billion seaborne market, using increasingly tough tactics against iron ore mining majors to do so.
It has since September banned its mills from buying some brands of iron ore from BHP BHP.AX while negotiations for this year's supply are underway.
"Iron ore is the bedrock of the economy, and the exports out of the Pilbara are very important to the Australian community, but also, of course, the federal budget," King said.
Australia accounts for around half of the world's seaborne iron ore exports, and hosts three of the world's four biggest iron ore miners, including Rio Tinto RIO.AX, BHP, and Fortescue FMG.AX, with Brazil's Vale VALE3.SA as the other.
"The price of iron ore is a bulk commodity that we have really importantly relied on for some time, as a long time indeed, as part of our budget," King said on the sidelines of an event in Melbourne, adding that the government kept an "active watch" as negotiations play out.
Iron ore price cuts typically are reported as cutting into a miner such as Rio Tinto's profit, King said, "but it's the budget bottom line that is affected by it. So of course, the government is always monitoring these things."
BHP's CEO Mike Henry said overnight that the world's biggest miner has in previous years been able to reach agreement with CMRG on annual supply terms even when negotiations were tough.
"This year, fair to say, (it's) probably a little bit wider than it's been in the past," he said at a BMO conference in Miami, adding, "I'm confident that we'll navigate all the way to a solution on this. It's just taking a little bit more time, playing a little bit more publicly this year than it has in the past."
($1 = 1.4170 Australian dollars)
($1 = 1.4156 Australian dollars)
(Reporting by Melanie Burton in Melbourne; Additional reporting by Ernest Scheyder in Florida; Editing by Sonali Paul)
((melanie.burton@thomsonreuters.com))