Australian mining row escalates as iron ore prices continue to slip

LONDON (ShareCast) - The ongoing row in Australia about how to handle declining iron ore prices escalated with the Chairman of Fortescue Metals Group urging his competitors to "cap production" and support prices. According to an ABC News report on 24 March, Andrew Forrest, the billionaire founder of the world's fourth-biggest iron ore exporter, said: "I am absolutely happy to cap my [Fortescue] production right now. All of us [producers] should cap our production now and we'll find the iron ore price will go straight back up to $70, $80, $90 per metric ton." "When you're just driving for market share at any cost and you're smashing the revenues of your host nation, and you're smashing the revenues of your shareholders, in the end you smash your own personal credibility," he added.

The comments, made at a meeting of investors in Shanghai, immediately triggered an investigation by the Australian Competition and Consumer Commission (ACCC).

"The ACCC will be looking closely at Mr. Forrest's comments and the context in which they were made," Rod Sims, chairman of the regulator said on Thursday. Sims added that any attempt to manipulate the market was a matter of "grave concern".

Iron ore prices have slumped by 50% over the past year to below $55 per metric tonne following a drop in Chinese demand and oversupply in the wider market. Forrest's comments follow those of a prominent Australian politician who labelled leading mining companies as "dumb" and accused them of flooding the market.

Rounding up on mining heavyweights BHP Billiton (NYSE: BBL - news) , Vale and Rio Tinto (Xetra: 855018 - news) , Colin Barnett, Premier (NasdaqGS: PINC - news) of Australia's Western Province, said their reading of the market situation had been "dramatically wrong".

"They have been putting too much iron ore into the market and...precipitated a continuing downward trend in iron ore prices. This has been one of the dumbest corporate plays I think I've ever seen," he added.

Barnett also alleged that Brazilian exporters had done the same and contributed to the oversupply. Australia is heavily reliant on revenues from iron ore exports with a current target price of $60 per tonne. However, analysts at UBS (NYSEArca: FBGX - news) expect the price to decline to $50 per tonne. HSBC and Barclays (LSE: BARC.L - news) analysts also maintain similarly negative outlooks.

A spokesperson for Fortescue said Forrest was only trying to "bring attention to the matter." Both BHP Billiton and Rio Tinto declined comment on the matter.

However, last month Rio Tinto Chief Executive Officer Sam Walsh said there was no likelihood of large miners co-operating over iron ore production volumes. "Whether you like it or not, there's no OPEC in iron ore. Its independent producers making their independent decisions," he said in a call to analysts.