by Greg Klein | May 19, 2015
With a new website launched May 17, Fortescue Metals Group renewed its call for an Australian government inquiry into iron ore giants Rio Tinto NYE:RIO and BHP Billiton NYE:BHP. A strident critic of the two companies, Fortescue chairperson Andrew Forrest accuses them of ramping up low-cost production to lower prices and drive competitors out of business. As higher-cost mines close and government loses revenue, Fortescue says the Australian economy loses about AU$1 billion for every $1 dollar drop in iron ore’s price. That price fell to a decade low of $46.70 a tonne in April, before climbing to about $61 last week, according to figures provided by Reuters on May 18.
The budget papers reveal $90 billion in economic activity has been lost to the Australian economy as a result of the fall in the iron ore price.—Nev Power, CEO of
Fortescue Metals Group
The news agency quoted BHP CEO Andrew Mackenzie calling such an inquiry “an amazing gift to our major competitor, Brazil.” The country is headquarters for Vale NYE:VALE, the third member of iron ore’s Big Three. At least one Australian senator backs the proposed inquiry.
While Rio and BHP deny allegations, Fortescue CEO Nev Power wants their bosses grilled over statements that he says suggest otherwise. Fortescue’s May 17 statement quoted BHP iron ore CEO Jimmy Wilson saying, “Demand side in this business still remains good but what we’re doing is we’re oversupplying at the moment and we’ll oversupply in the medium term.”
Wilson was also quoted, “Do we see value in us pulling back our volume with the objective of increasing the price? The answer to that is absolutely no.”
As for Rio CEO Sam Walsh, Fortescue dug up this quote from last June: “A lot of my friendly competitors are going to disappear.”
Australian Prime Minister Tony Abbott said any inquiry couldn’t become “a witch hunt, it can’t be directed against any particular company or companies,” according to MiningWeekly.com.
Saying the market was “working well,” Abbott maintained his country’s resource sector “has become very, very successful and prosperous, it’s very good for all Australians and it has done all that because of the initiative and the creativity of business, of private business, of private individuals and the last thing we want to do is to crack down on people’s creativity.”
But Fortescue’s Power argued, “The budget papers reveal $90 billion in economic activity has been lost to the Australian economy as a result of the fall in the iron ore price.”
Update: On May 21 Australia’s finance minister announced the government would not hold an inquiry into iron ore prices.