Fortescue CEO Nev Power has pointed the finger at Rio Tinto and BHP as the culprits behind iron ore’s plummeting price, as the two continue to expand their Pilbara iron ore operations.
Power said plans to continuing flooding the market has contributed to a softening Australian economy, according to The Australian.
It comes in the wake of an enormous profit crash, which saw Fortescue’s first half profit fall 81 per cent year on year.
The miner recorded a first-half profit of $US331 million, down from the $US1.7 billion it posted a year ago.
Speaking on the back of these results, Power said the continued efforts of Rio Tinto and BHP is affecting the market.
“As we know in the iron ore business there has been plenty of talk about what projects will come on but they have been delayed and not come on as forecast, but this apprehension of excess supply is influencing the price,” Power said.
This is not the first time Rio and BHP have been accused of flooding the market in an effort to drive out smaller operators.
Glencore chief Ivan Glasenberg stated that blame for the iron ore price fall should land squarely on the shoulders of major miners who have undertaken expansion projects.
“Prices are coming off because we see massive expansions coming there from our major competitors,” Glasenberg said.
Late last year West Australian Colin Barnett directly accused the two of “working in a concert way”.
"This seeming strategy of the two major producers to flood the market (with supply) and force the price down, I mean, remember who your landlord is – that's hurting Western Australia," Barnett said.
"I will just make the point, you can have your corporate strategy, but there's also a sense of corporate social responsibility.
"And while you are pursuing your business strategy – which I tend to think is flawed – you are actually hurting the host State, the State that provides the iron ore and generates most of the wealth of Rio Tinto and BHP at a world scale."
However he backed down from accusations of collusion.
Speaking to Grant Thornton partner – audit & assurance, Brock Mackenzie, he told Australian Mining that current conditions had created a perfect storm for the metal, as there are high levels of supply expected to come online from larger producers combined with a slowing growth in China.
While the group said iron ore price volatility is not uncommon, the difference this time is the oversupply flooding the market.
According to Anglo American, this global glut of iron ore, will keep prices at these five year lows for a minimum 12 months.
New research from analyst firm Morningstar has forecast the metal to reach its lowest point in 2017, falling to US$70 per tonne before recovering to a more stable US$75 per tonne by 2020, due to Chinese iron ore miners slowing output and the righting of prices as more stock floods the market.
Mackenzie explained there are "a lot of issues likely to be ahead on the supply side, with it more than likely that larger producers will also use the situation to gain more market share and edge out the smaller producers, so we are likely to see these larger producers use this aggressive pricing environment as an opportunity to push more marginal operations out, so that smaller producers fall by the wayside".
"Only the big suppliers with world-class assets, scale of production, efficiency, and good costs will be able to survive,” Vale global director of ferrous marketing and sales, Claudio Alves, stated, as his company received the greenlight to begin exporting to China using the enormous Valemax iron ore transport ships, and announced an intent to double exports to the nation.
Power added: “All companies have their options and own strategic decisions to make but the iron ore price going down has drained a lot of cash out of all of the industry, irrespective of what their cost structure is.”
“We are maintaining our margins and driving our costs down and will continue to do that irrespective of what the iron ore price is because we have the agility and nimbleness to respond to the market. There are a lot of others struggling to be able to do that,” he told The Australian.