(Recasts, adds details, quotes, prices)
By James Regan
SYDNEY, Dec 22 (Reuters) - Australia slashed its price forecast for the country's No. 1 export earner iron ore by nearly 20 percent on Tuesday, and warned that increased commodities production would only partly offset a collapse in prices.
The latest official quarterly forecast cut the value of Australia's resources and energy exports in the 2015/16 financial year by around 6 percent to A$166 billion ($120 billion) versus A$176 billion forecast in September.
Australia poured hundreds of billions of dollars into new mines and gas fields over the past decade to feed China's hunger for raw materials, but slower Chinese growth has seen unsold stocks stacking up at many of its ports and prices slumping.
"The increase in volumes is unlikely to be sufficient to offset the effect of lower commodity prices across the board," Australia's chief economist, Mark Cully, said in the report by the Department of Industry, Innovation and Science.
For iron ore, the average price forecast for 2016 was reduced to $40.40 a tonne from a $50 a tonne estimate in September.
"Increasing supply from Australia and Brazil is forecast to drive seaborne iron ore spot prices down in 2015 and 2016," the report said.
Iron ore .IO62-CNI=SI stood at $39.40 a tonne on Tuesday, according to The Steel Index (TSI), close to its lowest price since TSI began compiling data in 2008.
The government also cut its price forecasts for metallurgical coal to $83.80 a tonne and thermal coal to $59 a tonne, from $94.30 and $61 respectively in its previous forecast. Coal is Australia's second-most valuable export-earning commodity.
The end of the mining investment boom has also left liquefied natural gas (LNG) projects as the major driver of resource industry investment, accounting for about 88 percent of the $A221 billion committed by the sector.
"Australia's LNG exports are forecast to grow as new capacity comes online but growth in export values will be tempered by downward pressure on prices," Tuesday's report said.
Asian LNG prices LNG-AS , aggravated by mounting supply from Australia, which aims to overtake Qatar as the world's top producer in coming years, have slid by two-thirds since 2014 to under $7 per mmBtu. ($1 = 1.3870 Australian dollars) (Editing by Richard Pullin)