While today's budget will benefit from a booming iron ore price as well as a faster than expected recovery from recession, a prudent Treasury will plan for a peak in iron ore in coming months. Prices hit new record highs last Thursday and Friday, and could very well rise for some time to come, but the Chinese government is driving major policy changes that will eventually see crude steel production in China fall, meaning a fall in iron ore imports.

The policy changes are unrelated to China-Australia tensions; instead, they're driven by the Chinese government's desire to cut pollution from the steelmaking sector, which has defied government push to curb pollution that began in 2015.

Tax and tariff changes started at the beginning of May that will reduce export rebates and cut tariffs on imports of steel manufacturing input, while increasing export tariffs on high-quality specialty steel products. That will make it cheaper for China to import semi-finished products and even crude steel and retain the less polluting (to make) specialty steels.