One the more enduring features of the post-GFC political economy is the delusion that has taken hold our political elite when it comes to the usefulness of commodities. We have just sailed through an era when our macro managers decided it was a good idea to increase via strucutral adjustment Australia’s external exposure to volatile commodity prices. The hallmark of the same era was faith in endless Chinese demand that has now dried up and blown away like doggy dirt dried up in the sun.
Time and again we are seeing forecasts for crucial commodity inputs into national welfare that don’t bear the slightest resemblance to reality. Long term readers will recall the dreadful record of the Bureau of Resource and Energy Economics (BREE), which has drastically over-estimated crucial bulk commodity prices for years in succession. And today they’re at it again, from The Australian:
The Bureau of Resources and Energy Economics expects iron ore prices will recover to a trading range of $US90-$US95 a tonne over the next five years as China’s steel production rises from about 800 million tonnes now to reach 900-950 million tonnes a year.
