Suddenly a fall in the Australian dollar has become more urgent
Australian Treasury officials are now putting the final touches to their income tax estimates for the 2014-15 budgets.
To be realistic, they need to cut back their gigantic iron ore taxation revenue estimates. Last night, the iron ore-copper commodity crisis spread to oil. Our gas export prices and coal prices in the longer term are related to the price of oil.
The Australian budget is already deep in deficit without the big blow to taxation revenues caused by a commodity price slump.
What we need is a fall in the dollar to cushion the revenue fall. But a lower dollar is hard to achieve because of the capital flowing into Australia to complete the resource projects and the fact that our interest rates are higher than the US.
Any crisis that is linked to the banking system is hard to contain. And so last night we saw oil prices falling, despite the upward pressure on prices caused by the Ukraine stand-off.
The oil price was not helped by better than expected US output.
Earlier this week I set out how China's banking problems were a big force affecting iron ore and copper prices (The hidden crisis behind copper and iron ore price collapses, March 11).
Now we have received more detail of how this banking crisis affects various players.
It is clear China wants to shut down some high-cost polluting steel mills. A credit crunch is being applied to them, including higher interest rates.
A series of Chinese iron traders borrowed heavily to buy iron ore in the last quarter of 2014 and did very little hedging. They are now being subject to margin calls and have been dumping iron ore on the market. At the same time, they are not always being paid for iron ore delivered to the cash-starved smaller steel mills.
In due course, the lenders to the steel traders will take control of the situation and stop the panicked iron ore selling that compounds the losses. But China may use the crisis to achieve a long-term reduction in iron ore prices, given that the rise looming in global production outstrips likely demand in the next few years.
While there is turmoil, it will spread to other commodities -- except gold.