The Budget of Lies deserves no less, from The Australian:
The iron ore price has dropped to a whisker above the $US55 a tonne threshold as one credit ratings agency offered a bearish view of the commodity’s short and long-term outlook.
Iron ore fell 1.6 per cent to $US55.20 a tonne in the most recent session, according to The Steel Index, from $US56.10 the previous day.
The move comes as Fitch Ratings estimated an average price for the commodity of $US45 per tonne both in 2016 and over the long term, a forecast offered in a report affirming Australia’s rating as AAA with a stable outlook.
The $US45 estimate for this year places Fitch towards the pessimistic end of the range of analyst views, with some commentators recently upgrading short-term forecasts in response to the commodity’s surprising strength this year.
Iron ore has managed to hold above the federal government’s May budget estimate of a $US55 average price for nearly three months, despite the forecast being widely seen as too optimistic when it was issued.
I have informed the paper that these calculations are wrong. The Budget uses the free on board price (FOB) not the spot price (CFR) which includes freight. The difference is about $5. When you add that to the Budget forecast it becomes $60 and has been underwater for most of the last two quarters (averaging -$3.5)
Moreover, if you look ahead using the MB outlook or SGX futures the pain is set to get worse not better:
Given how bullish the iron ore market has been this year versus expectations, that the Budget is still under water tells you just how mendacious it was.
The Fitch outlook is about right for next year, with an H1 average of $50 and H2 of $40. Then cut another $10 for each of the subsequent two years.
