BHP Billiton chief Andrew Mackenzie probably had little hesitation in deciding to stick to his guns over iron ore pricing and a recent report on the commodity suggests he was right to do so.

It is reported this morning that BHP had been asked to allow a discount to China by none other than Premier Li Keqiang – but any concessions by BHP would have certainly been unsupported by price outlooks.

It is as good a news peg as any to have a look at what is happening to the bulks, the big earners for us.

The Commonwealth Bank of Australia’s commodity team, led by Lachlan Shaw and Vivek Dhar, does sterling work (as does its soft commodities colleague – but that is not relevant here).

I am surprised the CBA research gets comparatively little attention in the mainstream financial media.

Apart from daily notes, they also turn out some very detailed reports (a recent one on an inspection of the Chinese aluminium industry was certainly an eye-opener).

Just in the past few days the team has issued separate reports on the bulks, iron ore and thermal and coking coal – the last mentioned covering 52 pages. For iron ore, it’s a mixed outlook and for the coal ones, not quite so rosy.

It was also noted during the week that India is considering cutting its export tax of 30% on iron ore. However, this is unlikely to see any significant rise in exports: the high internal rail freight rates and priority given to domestic steel mills will see to that.

As the analysts point out, the price is rising ahead of the consensus: iron ore is now $US131 per tonne against the consensus forecast of $123/t.

Chinese steel output remains strong at about 780,000 tonnes per annum which, if sustained through to December, will signify 9% growth for 2013.

Offtake is being supported by rising infrastructure spending, particularly construction.

The Beijing government last week announced accelerated rail building efforts.

On the supply side, steel inventories are shrinking.

As far as India is concerned, CBA quoted the Federation of Indian Mineral Industries saying iron ore trade by that country would swing from exports in 2009 of 113 million tonnes to net imports of 12Mt in the year to March 2014.

“This is a significant tightening of the seaborne market, effectively neutralising the rise of Fortescue [Metals Group] to 120 million tonnes per annum,” the paper says.

If the iron ore price remains around $130/t until the end of 2014, more supply becomes economic – mostly from Chinese domestic sources.

Therefore, in order to balance the market, global crude steel output would need to grow at 7.6% in 2014 as opposed to CBA’s current 4.5% forecast.

Because Chinese steel output is outperforming what had been expected and India’s iron ore trade is tighter than forecast – and throwing in weaker than expected supply from Chinese mines – the overall market is tighter than had been assumed.

The bottom line: there may be more growth potential for the seaborne trade.

But the CBA team is less cheery about thermal coal, and has further downgraded price forecasts to $84/t for fiscal 2014.

It is due to what it sees as slower thermal coal demand growth, driven by environmental concerns and a more diverse electricity generating infrastructure.

In China, power-intensive industries are moving inland – which will affect the economics of seaborne supplies.

Add to that the global environmental policies favouring lower emissions (both the World Bank and the European Investment Bank have said they will no longer lend for coal-fired plants), the strong growth in renewal energy projects and the emergence of shale gas and you have the recipe for a thermal coal problem.

As for coking coal, CBA has cut its forecast price for hard coking coal by 18% to $143/t.

One of the main factors is China using more scrap steel, displacing blast furnace pig iron.

And there is a warning for us: “Australia will likely remain dominant in seaborne supply of coking coal, even with current record high costs – but cost deflation is needed to preserve that position.”

Fortunately, a weaker Australian dollar is supporting local producers, even as US dollar prices ease.

But we have to keep our eye on new sources of supply, especially from Mongolia, Mozambique, Canada and – potentially – new Chinese domestic capacity (all those discoveries in Xinjiang, for example).

None of this is disastrous news – and certainly not a great surprise – but you can certainly forget the “stronger for longer” nonsense.

Let’s hope the big spenders trying to win the federal election (and that means both of them) realise what this means for tax revenue.

But don’t hold your breath.