Iron ore futures pose tricky question to FMG

The new SGX iron ore futures market has begun to produce some interesting results with the market in deep backwardation out to 2016. First, April 2014:

April 2015:

And April 2016:

In case you missed it that’s futures pricing iron ore at $114 in one year, $107 in two years and $97 in three years.

I personally think that these are optimistic contracts by between 10% and 20% per year with more optimism the farther out we look. But even taken at face value, if we accept the common wisdom that FMG is break even around $100 then the conclusion is obvious. No $120 price floor here.

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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.