Photographer: Charles Pertwee/Bloomberg

Iron Ore Billionaire Lends Weight to Call for Supply Inquiry

  • Forrest sees `aggressive attempt' to eliminate competition
  • Rio says no substance to claims and market operates freely

The billionaire chairman of the world’s fourth-largest iron ore producer Andrew Forrest lent his weight to a fresh call for an inquiry into the export of iron ore from Australia, arguing oversupply is hurting competition.

“The supply-side insensitivity, the aggressive attempt to eliminate competition despite the consequences to the Australian economy which we saw last year, deserves investigation,” Forrest, chairman of Fortescue Metals Group Ltd., told reporters at a conference in Perth on Wednesday. His comments followed remarks from Cliffs Natural Resources Inc. that its biggest rivals in Australia had a strategy to crush the competition and it wants a government inquiry.

Andrew Forrest.
Andrew Forrest.
Photographer: Bryan van der Beek/Bloomberg

Australia’s government last May rejected calls by Fortescue and an independent lawmaker to investigate the iron ore market. Rio Tinto Group and BHP Billiton Ltd., the world’s second and third-largest ore producers, have expanded low-cost output, squeezing competitors and adding to a glut, prompting criticism last year from Cliffs’ Chief Executive Officer Lourenco Goncalves. Both companies have dismissed the analysis as contrary to free-market principles.

BHP and Rio’s strategy is flawed and basically “designed to run other companies out of business,” Goncalves told the conference in Perth. “Australians last year missed a big opportunity to try to address that. We’d like to investigate that -- it’s not a waste to have an inquiry into ore pricing.”

Handshake, Hug

After his speech, Goncalves met Forrest for the first time, and they greeted each other with a handshake and a hug. “Australia needs to carefully distill the comments that someone from overseas, which is a friend of Australia, makes about the management of the iron ore industry,” Forrest said.

QuickTake Iron Ore Wars

In August, Forrest said prices had plunged as the biggest miners committed “market vandalism” by overproducing. Last year BHP and Rio both defended their strategies, rejected the idea of an inquiry and warned that it risked undermining the country’s commitment to free trade and open markets.

There’s no substance to the claims and the market is operating freely and openly according to competition experts and leading economists, a Rio spokesman said in an e-mail on Wednesday. “Any intervention in the iron ore market would send a dangerous signal that Australia was turning away from free trade and open markets.”

‘Healthy Competition’

BHP declined to comment on Wednesday. Mike Henry, its president of operations, minerals Australia, told reporters Tuesday in Perth that the company sees the iron ore market “functioning as it should, that there’s healthy competition.”

Western Australia’s Premier Colin Barnett said on Tuesday he wants producers in the country to be more circumspect about expansions. The top miners are boosting output to push out competitors, Philip Kirchlechner, the Perth-based director of Iron Ore Research Pty and former head of marketing at Fortescue, said in an interview Wednesday.

“It’s a signal to the market that ‘Look, we’re going to put out so much quantity, don’t bother coming in’,” said Kirchlechner, who’s also Rio’s former chief iron ore representative in Shanghai. “The spirit behind an inquiry certainly makes a lot of sense, but whether or not it has any legal merits, that I cannot judge.”

Ore with 62 percent content delivered to Qingdao retreated 0.2 percent to $63.63 a dry ton on Tuesday after Monday’s 19 percent rally to the highest since June, Metal Bulletin Ltd. data showed. Prices have collapsed to a third of their 2011 peak.

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