I’ve been using Singapore (SGX) twelve month futures for some time to discredit Australia’s official iron ore price outlooks. Today I thought I’d go one step further and take a look at the entire SGX iron ore futures curve which runs right out to 2019. Here it is charted against Australia’s various official forecasts:
Clearly the curve remains in deep backwardation and, yes, right now you can buy iron ore to be delivered in 2019 at $27.88 (FOB).
The comparable 2019 prices for Australian agencies are as follows:
- Office of the Chief Economist, Department of Industry (Ministry of Dirt) $63.90;
- Budget of Lies (Federal Budget 2016/17) $55 this year and tends to use the Ministry of Dirt outlook further out;
- Naked Emperor (WA Budget) $48.
Let me make this plain. You can buy iron ore to be delivered in 2019 right now for $27.88 (FOB) yet Australian agencies are forecasting prices in the clouds for the same time frame. Using the example of the Ministry of Dirt, the difference in the Budget for 2019 on these prices is $50 billion in nominal GDP and some $15 billion in Budget revenue. It will be worse because coal will follow it down. The outlook will improve by the % falls ahead in the Australian dollar but that will only shave the edge from the black hole.
This commodity price propaganda is designed with just one end in mind; not having to undertake any of the budget reform needed in advance of the obvious price falls to come. It is a kind of Budget control fraud.
