From The West Australian:
In estimates yesterday, Labor’s Sue Ellery sought an explanation from under-treasurer Michael Barnes about what had gone wrong.
In short, Barnes’ answer was that Treasury had got it about as wrong as everyone else in the business of forecasting iron ore prices. Treasury relies on the consensus forecast of several other private sector prognosticators, and so its defence is essentially that all the close observers missed the precipitous drop off in demand from China.
“Steel production in China is actually decreasing. The market missed that weakness, and so did we,” he said.
“Every forecaster was out by a similar order of magnitude … Everybody got it very closely wrong by the same order of magnitude.”
Another factor, Barnes said, was the changing nature of the iron ore trade. Whereas Pilbara iron ore was once sold mainly to Chinese and Japanese steelmakers under long term fixed price contracts, the commodity is increasingly traded on the short term spot market through Singapore (Treasury believes about 40 per cent of seaborne iron ore is now traded through the Singapore spot market, up from just 17 per cent a few years ago).
That speaks for itself. The market structure change happened in 2009 so perhaps it is time to catch up. As for nobody saw it coming…pfft…
The answer is simple. They got it wrong because they did not want to get it right. Colin Barmynett was still up-selling huge iron ore expansions in West Pilbara in 2014 as the price collapsed.
It was pro-cyclical, vested interest jibber jabber, that could not see beyond a projected image of itself.
