Following in my footsteps, the AFR has a good piece today from Deutsche’s Adam Boyton on the both the importance and price of iron ore:
…if iron ore prices were to hold at the $US158 a tonne level seen a little over a week ago, interest rates could end the year higher than they are now – not lower, as markets currently expect.
On our estimates, an iron ore price of $US158 a tonne throughout the year would see a sharp pick-up in nominal GDP growth to around 6 per cent by the end of 2013…This is because it measures not just what the economy is producing, but also what we are being paid for it. A 6 per cent pace of growth in nominal GDP is above what Treasury would consider to be Australia’s long-run average growth rate…So iron ore could rescue the Australian economy. However, weakness at the start of the financial year means that nominal GDP growth in 2012-13 would still fall a little over a percentage point short of the government’s current forecast of 4 per cent.
We expect that this seasonal pattern, as well as additional supply from Australia and Brazil, could see iron ore back under $US120 a tonne around the middle of the year.
Spot on, I say. This seems an opportune time to check in on what other analysts are forecasting for iron ore and here you have it:
A median price of $118.50 and falling thereafter. Some of these are out of date, though, Mark Pervan of ANZ cut his forecasts to $115 for Q1 in October. Nobody trusts the rally.
