War of words over iron ore’s parliamentary inquiry

With an inquiry into Australia’s iron ore sector on the way, industry players and politicians have jumped in to have their say on the state of trade as it stands.

Senator Nick Xenophon is working with the government to establish a one-off joint selection committee inquiry which will probe the iron ore strategies of Rio Tinto and BHP Billiton.

Questions surrounding the actions of the major miners have been publicly pushed by FMG’s chairman and founder Andrew Forrest in recent weeks.

Forrest is blaming the majors for the bearish sentiment which has befallen the iron ore industry and went as far as to urge the public to “stand up” and ask if the multi-national miners have a social licence to operate in a new website launched last week.

Forrest claims the major miners have made a deliberate play to keep prices down by flooding the market and making statements about the future increases in production.

Junior Miners Atlas Iron and BC Iron yesterday joined Forrest’s call, claiming the action taken by the majors is hurting Australia’s economy.

Both Atlas and BC have been forced to cut jobs and shut mines in Atlas’s case as the plunge in the price of iron ore proved too much for the company’s break even costs.

According to the Western Australian, Atlas chairman David Flanagan accused BHP and Rio of not acting in the best interests of taxpayers.

He also said claims by the majors that overseas competitors would be quick to supply more iron ore if caps were placed on production as “rubbish”.

BC Iron’s chairman Tony Kiernan said it was important the inquiry noted that mineral resources belonged to the Australian public and not mining companies.

"Secondly … it's a depleting asset. Once dug up and sold, it won't be there," Kiernan said.

"From the public's perspective, surely they should be able to get a fair price for the asset they own and which will not be replaced."

Meanwhile FMG’s chief financial officer Stephen Pearce says an inquiry into the sector is urgent.

"There's people that are losing their jobs last week, there's people losing their jobs next week because of the state of the iron ore industry," Pearce said.

"And all we really want to do is ask the questions. Is iron ore being sold for a fair price? Are royalties being paid on a fair basis?"

The collapse in the iron ore price has torn a huge hole in the both the Australian and West Australian budgets.

The 2015-16 Federal Budget predicted a price average of $US48 per tonne for 2015-16.

The price cut is expected to slash around $A20 billion in tax receipts from forward estimates.

Since the last budget, the value of forecast iron ore exports has been downgraded by around $90 billion.

Rio Tinto weighs in

Rio Tinto’s iron ore boss Andrew Harding says an inquiry would send the wrong message to Australia’s iron ore customers.

"Australia must be mindful of the signal an inquiry would send," Harding said.

"Australia has been a global champion of free trade and open markets. We should be careful not to disturb this hard-earned reputation."

In a memo to employees, Harding defended the company’s approach to iron ore production, stating the company took “no comfort from those businesses struggling”.

“There is no doubt it is a tough time for all of us in the sector.’’

Harding said FMG has added more iron ore to the market than other iron ore miners.

“Since 2004, the biggest three global iron ore producers (Rio, BHP and Vale) have added 396 million tonnes to the seaborne market while new entrants (Fortescue and others) have added a greater amount — 401 million tonnes,’’ he said.

“And between 2015 and 2017, we plan to add a further 20 million tonnes to the expected more-than-one-billion-tonne seaborne market. That represents just 2 per cent of the market.’’

Pollies speak out

There are reports that both Trade Minister Andrew Robb and Industry Minister Ian Macfarlane are opposed to any parliamentary inquiry into the iron ore industry, claiming it will damage Australia’s trade relations with China.

Prime Minister Tony Abbott has backed calls for an inquiry, stating that any predatory behaviour by companies is unwelcome.

However Abbott said his government did not intend to interfere in free markets.

We're not in the business of holding them back," Abbott said.

"We're not in the business of holding their hands. They don't need to have their hands held. They certainly don't want to be held back and this Government will certainly never do that.

"The important thing is that we have a dynamic, creative, productive iron ore industry for the future.

"We are by far the world's largest exporter of iron ore. Iron ore is an incredibly important commodity for this country and for the wider world.

"So we want to ensure that the market is operating as it should. Now I don't come to this with any preconceptions, I don't come to this with heroes and villains. I support all of the great Australian companies that are active in this field."

Treasurer Joe Hockey says any inquiry would not look to take aim at BHP and Rio.

"This is about providing a better understanding, if it is to proceed … of how iron ore prices are determined in the global marketplace, about the competition from Brazil, about future demand out of China, but not just China, potentially India and a range of other jurisdictions,” Hockey said.

"Given we supply around 60 per cent of the sea-borne iron ore in the world and we produce, as I said in my budget speech, enough iron ore to build the Sydney Harbour Bridge from Sydney to Perth and back to Sydney every year, I think we've got a lot at stake here and I think we should have absolute transparency."

Hockey described BHP and Rio as huge taxpayers and big employers in Australia.

“And we are not anti-Australian,” he said.

A decision on whether or not to go ahead with the inquiry will be made over the next few weeks.

Shadow treasurer Chris Bowen said Labor would co-operate with an inquiry.

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