WA Premier Colin Barnett accuses Rio Tinto and BHP of iron ore collusion

Just days after he warned miners to "remember who your landlord is", WA Premier Colin Barnett has questioned why Rio Tinto and BHP are pushing more iron ore into a depressed market.

Last week Barnett blamed the cut of 1500 public sector jobs on the low iron ore price which is set to put a hole in the state budget as royalty payments decrease.

In a heated exchange in Parliament yesterday, Barnett questioned the business strategies of the state’s biggest miners and their plans to increase iron ore production despite a dip in prices and demand, The Australian reported.

“I find it a strange policy, indeed a flawed policy, that the major iron ore producers would be putting more and more product into a declining, soft market,” he said.

“And I think it will be a failed policy — no doubt about it — and I find it strange that the companies are acting seemingly in a concert way.”

Barnett claimed it would not be the first time BHP and Rio worked together to control market share.

"This is the third iteration of some sort of arrangement it seems between BHP and Rio and maybe other iron ore producers," he said.

“The first happened in the late 90s when they proposed to merge and at the time I remember saying very clearly the Government would not allow that, and we didn't – that was the end of that. The second iteration was I think 2009, when they proposed to merge their iron ore operations in a physical sense in the Pilbara. It caused great objection from Chinese steel mills and it was the European Union that ruled against that and they backed away from the whole deal.

"Now we have another variation. I don't think it's healthy for the iron ore industry, I don't think it's a good policy for shareholders of those companies, and it certainly damages WA."

Rio has denied the claims, saying it would “never countenance or engage in any form of collusive behaviour, ever”.

Shadow treasurer Ben Wyatt challenged the Premier by stating Barnett was present at the opening of BHP’s Jimblebar mine.

“You were positively glowing at that very opening of that mine,” Wyatt said.

“Why are you so shocked and angry that BHP is increasing its iron ore volumes?”

Barnett said the iron ore market looked very different in April before the price drop took hold.

 “You tell me the logic of pouring iron ore into a depressed market,” he said.

“If I was a large shareholder or an institutional investor in one of the large mining companies, I would be questioning why they are pushing high volumes into a very depressed iron ore market.”

"And I suspect major institutional shareholders are doing exactly that right now, because the business logic of that is unsound."

The comments come after Rio announced its Pilbara expansion plans were 75 per cent complete.

The miner will be producing 360 million tonnes of iron ore a year by the middle of 2015.

Meanwhile, BHP has said it plans to add 65 million tonnes to its operations.

This would increase annual output to 275 million tonnes per annum by the 2017.

The price of the steelmaking ingredient has fallen by more than 40 per cent this year, with predictions it could fall further as demand from China wanes.

Image: familymattersmallorca.com

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.