IRON ORE BREAKS $US80

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The commodity rally keeps on giving, at least in terms of Australia’s major exports.

No major forecaster, including the investment banks and the Australian Treasury, is pegging anything higher than $US70 for iron ore tonnage over the year ahead.

Yet the spot price just edged over $US80 (as Business Insider’s David Scutt foreshadowed early on Monday.)

The old equation used to be that a $US1 move in the iron ore price could make a difference of around $200 million to the Australian federal budget bottom line.

But the price has become so highly volatile (see the chart below) that it’s very difficult to tell what the average will be over the course of a 12-month period. This is a point that Treasurer Scott Morrison has repeatedly emphasised while standing over his department’s projection of a $US55 per tonne price on the market, warning that Treasury should take a conservative view on the price projection ahead.

Investment banks around the world are starting to upgrade their forecasts for the iron ore price. Goldman Sachs recently hugely revised its price forecasts, towards $65 per tonne:

Who knows what comes next?

Right now, what we do know is that the price is higher than pretty much anyone predicted.

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