Iron ore: the bubble and our budget

As iron ore becomes a casino chip for Chinese speculators, budget forecasts might not hold and miners are in for a bumpy ride.

Summary: Falls of iron ore on Asian commodity exchanges are a warning sign as the Australian government’s federal budget pencils in an assumption of a $US55/t forecast. The share price of miners BHP, Rio and Fortescue were hit shortly after iron ore fell to $US63/t yesterday, and should the price continue to weaken then the budget will be under pressure – every $10/t change in price results in a $6 billion change to overall GDP.

Key take out: While executives do not have price tips, big miners are tipping softer prices later in the year, and are taking advantage of current prices now to pay down debt significant debts.

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