by Chris Becker
The Bureau of Resources and Energy Economics (BREE) has released its quarterly report today and it makes for some interesting – if still somewhat optimistic – reading.
First of all, BREE has slashed its forecast for iron ore to $USD94 for the rest of the year (its currently $USD90 over the quarter), falling from $USD107 in its last report in June.
They’ve gone the safe route and penciled a similar figure for the rest of next year, and gone even safer by expecting a semi-permanent plateau between $90 and 95 – which of course is delusional given the real factors at work here, both macro and market related.
Maybe this is a bureaucratic mandated range and the chaps at BREE are holding their real opinions close to their chest, but the reality is another authority has failed to learn from history, that booms always bust and the cycle in pricing an overshoot in both directions.
The iron ore pricing cycle in expected to continue in the medium term. Its peaks and troughs will be lower as pries trend down in response to growing supply availability and iron ore prices are projected to average US$86 a tonne in 2019 (in 2014 dollars).
The report itself has an interesting summary of the impact on mineral extraction to the Australian economy, the first of which is that fascinating (or horrifying if you’re in the business of risk management):
Two ponies really: houses and holes.
And one of those ponies is literally a one horse race – iron ore providing a huge component of export dollars:
BREE are also suggesting that FY2015 will see a nominal decrease in export earnings, down 1.4% to $192 billion – perhaps this might be boosted by a falling dollar as USD strength takes hold. Further price declines that “nobody predicted” may negate even that positive spin.