Feb 10, 2014

The rebalancing act: why iron ore is giving Hockey headaches

Joe Hockey may have to go back to the numbers on iron ore. The decline in prices is accelerating, making his assumptions on returns out of whack.

Joe Hockey has taken some recent stick for his mid-year economic update, in which he oversaw a dramatic lowering of the economic assumptions that underpin the government’s revenue and cost assumptions. To the sceptics, the Treasurer is setting up an easy win for the new government as the economy outperforms Treasury’s conservative estimates and delivers a quicker-than-forecast surplus, about which Hockey can crow.

But there is one key assumption in the Treasury’s outlook that might not be bearish enough. It is the price of Australia’s key export commodity — iron ore — which is shaping up to have a very difficult 2014.

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5 thoughts on “The rebalancing act: why iron ore is giving Hockey headaches

  1. leon knight

    Why can’t our Miners be as tactical with “hoarding” as the Chinese customers?
    Seems to me that the Chinese are prepared to take long-term views, while we can only focus on sales right now, and ship it all, no matter the price…
    Why can’t our government offer surreptitious assistance in the form of loans in return for interest payments and a better tax return as they reduce the risk for the miners?

  2. Jimmyhaz

    This would be incredibly problematic if the Australian government had any need to post a surplus.

    Thankfully, it doesn’t, and Australia will keep running as it has, just with fewer people’s livelihood dependent on the mining sector.

  3. JohnB

    China, with growth rate of 7% is NOT slowing. It is not. It is not.

    Get through your head, that a reduction in the rate of growth of the economy is not the same as a reduction in the economy as a whole. It is mathematically illiterate to pretend that it is so.

    The author should be sent to Coventry until he understands this fundamental concept, as should other word-generating yappers who write financial columns.

  4. JohnB

    Regarding stockpiles…

    If the world trade in iron ore is 100 million tonnes, as stated, then the chinese inventory is barely more than a month’s supplies. This doesn’t look like hoarding, but normal business practice.

    For example, it is not unusual for Australian black coal power stations to hold stockpiles to see them through the next 3 to 6 months, in order to allow for difficulties in transport, mining conditions, labour situation (strike-proofing), possible mechanical failure of delivery systems and as a hedge against possible future game playing in the marketplace by the largest suppliers, who would of course never engage in cartel behaviour. Or would they?

    One months’ stockpile appears to be somewhere between light on and reasonable. Maybe Australian suppliers should work to persuade the Chinese to double their stockpiles while prices are reasonable, rather than to worry about their current size.

  5. Jack Phat

    I would have thought the most important consideration is the $A exchange rate which has effectively given miners a 20% price increase in A$’s in the last two years but hey what do I know?

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