Pascometer burns red on iron ore

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Weeoo, weeoo, weeoo:

It takes two graphs to put the current mini-panic over the iron ore price into perspective, to realise that Australian miners should eventually do quite nicely out of the present shakeout.

That’s with the obvious caveat that first they have to survive the rationalisation. Some won’t.

That’s unfortunate for the marginal mines’ owners and employees, but it’s hardly surprising that the highest-cost producers fail when prices come off the boil. It’s as normal in mining as drought is in farming. And from the overall Australian economic viewpoint, it doesn’t matter.

It’s the nature of news to favour the biggest number, the scariest percentage, the sharpest comparison. (There are whole blogs devoted to frightening punters into reading.)

Prices soaring over the past decade have had the inevitable result of spurring a sharp increase in supply, which inevitably reduces prices. Like every boom that ever was in any commodity, the animal spirits tend to get a bit carried away on the upside and some projects that shouldn’t have started come to an end.

The prime fundamental of increasing steel consumption as developing countries develop remains in place. China’s steel intensity has a long way to run yet, never mind the billions of people yet to get to China’s stage.

There is a bigger fundamental commodities story about the nature of global growth at present, about it being dominated by emerging nations for many years to come, about commodities prices being artificially low over the previous couple of decades. That was summarised in a HSBC economic report yesterday that preposes current commodity prices are only getting back closer to their long-term average.

Of course none of this is any surprise, not even The Pascometer’s pathetic failure to acknowledge that MB got it right. It was and remains so obvious that one wonders that The Pascometer never predicted any of it, instead focusing aggressively on the endless China boom meme and losing his much loved “punters” money hand over fist.

Looks like the iron ore bust is going to be one for the ages!

Weeoo, weeoo, weeoo.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.