Fortescue chairman Andrew Forrest will reportedly seek an iron ore inquiry from the WA government, after his campaign for a federal probe was shouted down by competitors and many market analysts.
According to several reports, ‘Twiggy’ Forrest will look to win over the state’s Economics and Industry Standing Committee, in order to push an inquiry into the iron ore market through state parliament.
Forrest has been campaigning against his bigger iron ore competitors since the market price for the commodity began to plummet.
After sitting around US$140 a tonne at the start of last year, the price dropped by US$100 over the following 14 months, before settling at roughly US$60 a tonne in the last few weeks.
The price decline has been due to typical market forces: demand from the world’s biggest iron ore customer – China – has slowed, while supply from the world’s biggest companies – Rio, BHP, Vale and Fortescue – has risen.
Fortescue believes BHP and Rio have purposely flooded the market with that oversupply, in order to squeeze out their smaller Australian competitors, who produce iron ore at a higher price and can’t afford to do so at lower market prices.
Twiggy has campaigned for the federal government to open an inquiry into the industry, to see whether the government should intervene in the market to produce a better overall result for the sector and, in turn, the Australian economy.
But many have suggested the Fortescue founder’s campaign is a self-serving act of desperation, which could have disastrous consequences for Australia on the global stage.
And the targets of Twiggy’s ire – Rio and BHP – say their behaviour has not only been fair, but that it has been more responsible than that of smaller miners, including Fortescue.
“There’s been a spike – a once-in-a-generation spike caused by what happened in China,” BHP boss Andrew Mackenzie said in May, “that is never going to be repeated.
“As a result of that spike, a number of high-cost producers came into the market. Good on them. But that type of investment was never going to be sustainable in the long term, because we’re now back to a normal market.”
Mackenzie said that while BHP had scaled back its planned expansions, FMG had gone ahead with its own plans, despite the market warnings.
“We have two berths in the Inner Harbour [of Port Hedland] that we have chosen not to develop,” Mackenzie said. “[Forrest] has developed his berth.”
This week, BHP’s iron ore chief Jimmy Wilson echoed his boss’s sentiments, writing in an op-ed in The Australian: “None of this is a surprise. In anticipation of supply growth exceeding demand growth, we have not approved any major capital growth investments in iron ore since early 2011.”
He said the mining giant’s reaction to a turning iron ore market was to in 2012 defer around 180 million tonnes of annual capacity expansion, including the two inner harbour berths at Port Hedland, and more planned work in the outer harbour.
“Despite the tens of billions we have invested in our iron ore business, BHP’s share of supply in the seaborne market has remained constant at about 17%,” Wilson continued. “Fortescue Metals has grown its share of seaborne exports to 11% since entering the market in 2007 – they have been the world’s most prolific iron ore growth story between 2007 and the end of 2014.”