Colin Barnett has no idea

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From the AFR, it’s difficult to know where to start with this from WA Premier Colin Barnett in parliament yesterday:

“If you are selling a product into a market and the price is falling and falling at a very fast rate, the normal commercial reaction would be to cut back on supply into that industry…You would normally expect the quantity supplied into the market to fall in response to a falling price…I find it a strange policy, indeed a flawed policy, that the major iron ore producers would be putting more and more product into a declining, soft market…And I think it will be a failed policy – no doubt about it – and I find it strange that the companies are acting seemingly in a concert way.”

Over the past year, BHP and RIO have increased iron ore output by roughly 40 million tonnes (mt) each. Fortescue has increased its output by 100 mt. The iron ore price is not falling owing to spooky collusion, it’s falling owing to the rise of competition. As I recall, a basic principle of increased competition is that prices fall. Ironically, it is Barnett who is openly campaigning for BHP and RIO to collude by agreeing to not respond to a competitive threat.

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The reason why is obvious enough. His budget is a laughing stock having forecast iron ore prices of $120 forever. A resource producing state really aught to have someone in charge who has a clue about resources.

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.