Earth to world press: Australia is not bearish on iron ore

Sunday 9 October 2016

I’ve lost count of how many articles I’ve read now that have misinterpreted last week’s Office of the Chief Economist outlook for iron ore. The following has been universally quoted as bearish:

Australia’s iron ore export volumes are forecast to increase by 8 per cent to reach 851 million tonnes in 2016–17, supported by operational improvements and the ramp up of production at new mines and expansions. Export earnings are forecast to increase by 12 per cent to $54 billion in 2016–17, revised up from the previous forecast of $49 billion. The revision reflects persistently high prices in the September quarter. However, the iron ore price is forecast to decline later in 2016 and average 6 per cent lower in 2017, at US$45 a tonne (FOB Australia).

Note that the price used is FOB, that is, “free on board”, which does not include the cost of freight that is included in the CFR or spot price. Historically one had to add $7-8 per tonne to convert FOB to CFR but these days it’s more like $5-6 as a shipping glut and low oil prices hit freight rates. Very recently the price has been rebounding as the Baltic Dry jumps largely on the surge in seaborne coal volumes:

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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.